shareholders

Freightways' first-quarter profitability was flat as the express delivery company continued to be shackled by the sluggish economy. Managing director Dean Bracewell told shareholders at the annual meeting in Auckland yesterday that operating earnings for the three months to September 30 were up by 4 per cent. But higher interest rate costs meant net profit was flat at $7.7 million, he said.

Mr Bracewell declined to comment on mounting takeover speculation. Freightways, which shares the New Zealand express package market with NZ Post in a near-duopoly, has long been touted as a likely takeover target. Suggestions that Toll Holdings might launch a bid have been around for a couple of years. This month, the Australian Financial Review reported that as well as Toll, Qantas, FedEx and Deutsche Post's DHL were interested.

"I have no doubt that it's on at least a couple of companies' radar screens," First NZ Capital analyst Andrew Mortimer said. "I certainly wouldn't discount it but it's a question of timing. It's got an open register and it's vulnerable."

Mr Bracewell said he saw no short-term let-up in the challenging New Zealand conditions. "We said at the full-year we expected a flat environment and that's what we've got," he said. "It will come back; it always does. And when it does we'll be ready with good-quality capacity and we'll reap the benefits of it then, but I couldn't put a time frame on that."

At close the Freightways share price was down 15 cents at $3.80.

Growth in the business mail and information management businesses continued to outpace the core express business, Mr Bracewell said. Capital investment of $15 million would be spent during the 2008 year including the initial development of a recently acquired information management site in Wellington.

Freightways' largest shareholder is Fisher Funds, which has a 9.8 per cent stake. Fisher Funds chief investment officer Warren Couillault said Freightways was doing well relative to the conditions it was operating in. "It does feel to me that the underlying barometer of the economy, in moving freight around the country, has been weak for about a year and a half," he said. "The fact that they're holding their bottom line is good, given that they've got huge cost increases in labour, occupancy and energy. "The little nibbling acquisitions they are making in data and storage are good as well. That will give them a springboard in Australia and it's exactly what we want them to be doing."

Directors Sue Sheldon and Sir William Birch were re-elected to the board at the meeting. Directors' fees were increased from $225,000 to $336,000. This includes $52,000 to be available if a sixth director, likely to be an Australian, is added to the board.

Postie Plus's board has had no communication with Jan Cameron, founder of Kathmandu retail chain, who has taken an 8.6 per cent stake in the clothing company.

Cameron cashed up her highly successful Kathmandu retail chain last year for a reported price of $275 million.

Cameron taking a stake has left shareholders wondering if this is a signal she may have a takeover bid in mind.  Postie shares were thinly traded on Friday, closing steady at 80 cents, below their 2003 100c issue price.  She is New Zealand's richest woman, according to the National Business Review Rich List, worth $300m.  Postie Plus chairman Peter van Rij said: "We have had no communication with Jan Cameron."  Van Rij said if the company had it would probably have to disclose that to the New Zealand Exchange.

Cameron was probably the single largest shareholder now because the Dellaca family, which founded the company in Westport, had sold some shares to her.

Asked if the board was expecting Cameron to call, van Rij said: "Perhaps the answer is no because if she was she probably would have spoken to us by now.  "She may talk to us but she hasn't talked to us. Maybe it's just a passive investment that she's making," he said.  Richard Dellaca said he believed Cameron had bought about 1.1 million shares from family members.  The purchases were done through a broker. 

Postie Plus has 40 million shares on issue meaning the market capitalisation is $32m.

Wesfarmers has won board support for its record A$18.2 billion ($21.6 billion) cash and stock bid for Coles Group, Australia's second-biggest retailer, after promising to top-up the offer if its share price doesn't rebound.

The takeover was in danger of failing after Wesfarmers' stock plunged as much as 19 per cent from a record A$45.73 the day the deal was announced, wiping A$2.5 billion from the value of the offer. Wesfarmers yesterday pledged to give Coles investors more stock if its shares are trading at less than A$45 in four years' time.

Wesfarmers shares, which accounts for three-quarters of the value of the bid, have slumped on concern the Perth-based company is paying too much for Coles, whose profit growth has stalled. Rather than increase the offer now, Wesfarmers' chief executive officer Richard Goyder is betting he can revive Coles' fortunes and boost his share price. "This modification of our offer reflects our confidence in the value of the transaction to shareholders of both companies," Goyder said yesterday.

Coles shares rose A68c, or 4.8 per cent, to A$14.92 by early afternoon in Sydney. Wesfarmers shares rose A$1.17, or 3 per cent, to A$39.71. Coles shareholders will get A$4 cash, a 25c dividend and the rest in shares. Half the share component will be ordinary Wesfarmers stock, and half will be so-called price-protected stock. The price-protected shares, which will trade on the Australian Stock Exchange, will pay an annual dividend of at least A$2 each. If Wesfarmers shares are trading below A$45 in four years, owners will get free stock to make up the difference.

The sweetened bid is in the best interests of shareholders, Melbourne-based Coles said, citing a report by Grant Samuel & Associates. Coles did not release the Grant Samuel report, which was commissioned to assess if the bid was "fair and reasonable". The offer from Wesfarmers, whose businesses include mining and insurance, was valued at A$17.25 a share when it was announced July 2, based on the company's record stock price at the time.

The deal was worth A$15.22 a share at Tuesday's prices, which is below a A$15.25 cash offer Coles rejected in October as too low and "substantially" undervaluing the company. Coles owns 3000 stores including supermarkets, Officeworks stationery supply outlets, filling stations and the Target and Kmart discount department stores. Coles shares haven't traded at or above A$17.25 since the bid was made. Wesfarmers was the only bidder for Coles after buyout firms TPG and Kohlberg Kravis Roberts & Co. dropped out of an auction.

Goyder made the bid alone after his buyout partners, Permira Holdings and Pacific Equity Partners, withdrew just before the deadline for bids because of rising borrowing costs. Coles rejected a A$15.25-a-share cash offer from KKR in October as too low, instead backing CEO John Fletcher's promise to boost earnings 35 per cent. In February, the company put itself up for sale after giving up on Fletcher's forecast.

Deutsche Bank and Melbourne-based Lazard Carnegie Wylie are advising Coles. Wesfarmers is being advised by Gresham Partners and Macquarie Bank.

The Warehouse is coming under pressure to axe its fresh food
grocery offering in order to let shareholders get a higher price for
their shares through a takeover offer. The recent move by The Warehouse into fresh food retailing
at sites in Whangarei and Auckland is believed to be the reason why the
Commerce Commission last week blocked either Woolworths or Foodstuffs
from making a takeover bid.

The Warehouse Extra hypermarket format was launched after a lot of planning. But recent evidence suggests the move into supermarket retailing is not faring well. The argument in the marketplace is that if the fresh food offering was
dropped both Woolworths or Foodstuffs would be able to bid, with the
result that shareholders could expect a much higher takeover offer.

Brook Asset Management chairman Simon Botherway on Friday wrote to the board seeking a strategic and capital review. "(The Warehouse is) worth more to alternative shareholders than to current shareholders," he told The Sunday Star-Times. "I've made that clear to the board and asked them to carry out a review of the grocery strategy."

First NZ Capital analyst Sarndra Urlich, in a report yesterday,
questioned whether The Warehouse should curtail the grocery strategy
enough to enable Woolworths or Foodstuffs to get clearance to buy it. "Why run the risk of ceding any valuation upside to private equity," she said.

A private equity buyer of The Warehouse could simply halt the fresh
food grocery expansion itself and then sell the business on later to a
trade buyer, she said. "In our opinion, the valuation upside
from ending the hypermarket strategy that is the increased chance of a
favourable regulatory outcome for a trade buyer is significantly higher
than continuing with it. The hypermarket strategy is flawed
in the New Zealand context and could potentially suppress earnings,
assuming a meaningful rollout of this format," Ms Urlich said.

The Warehouse chairman Keith Smith said yesterday that the Warehouse
Extra strategy was continuing as planned "and nothing has changed". Mr Botherway's ideas would be tabled before the board. "But we have a number of stakeholders and they are not just the
shareholders - and we will consider all of those stakeholders."

The Warehouse's shares traded as high as $7.32 in April when most
people in the marketplace believed that both Foodstuffs and Woolworths
would be given approval to make bids - setting up a huge battle that
would be potentially lucrative for the existing shareholders. But after Friday's verdict from the commission, the share price sagged
as much as 9.2 per cent. It recovered a little yesterday, closing up 2
cents at $6.07. Both supermarket companies are expected to appeal against the commission's decision, which could take six months at least.

Stephen Tindall could yet be involved in a new takeover bid for The Warehouse alongside supermarket operator Foodstuffs and private equity investor Pacific Equity Partners.

Market sources say the three may be seeking to work together on a deal to rival the expected bid from Australian supermarket giant Woolworths.

One source said: "We could see a joint venture formed with Stephen and potentially the (Tindall) Foundation having 33-50%, PEP 25-33% and Foodstuffs with 25-33%. Potentially we could see them all with thirds.

"The working proposition is that (Tindall) is involved in it."

Tindall, who returns from holiday this week, controls 51% of The Warehouse, mainly through his personal holding of 27% and the 21% owned by the Tindall Foundation, a charity he set up in 1995. The Warehouse founder's position is therefore critical to the competing ambitions of Foodstuffs and Woolworths.

Sources say Tindall will ultimately go with the highest offer, even if it comes from Woolies.

A source said: "But if (a three-way deal with PEP/Foodstuffs) is the best offer on the table and the best price and all the rest of it, then I guess it's something he can look at."

The Warehouse's share price has leapt since September when Tindall proposed taking the company private. He was offering $5.75 a share, well above the then share price of around $5.

Later that month Woolworths bought 10% for $196.4 million, paying an average $6.43 a share for its stake, matching Foodstuffs' 10% holding and fuelling speculation of a takeover battle.

Both Woolworths and Foodstuffs have applied for Commerce Commission clearance to buy The Warehouse.

Last week the shares were trading around $7.24, a level unseen since 2002, valuing the company at $2.2 billion.

It's a steep valuation for a retailer that has struggled to grow.

"Increasingly at the prices being talked about, realistically Stephen is a seller," said another source.

Both sides can afford to pay a takeover premium, although analysts say Woolworths has the most to gain from merging The Warehouse with its existing New Zealand operations.

But recent merger and acquisition activity has been dominated by private equity firms such as PEP, with bigger appetites for risk and willingness to take on more debt than listed companies, to secure control of takeover targets.

In December PEP and CCMP Capital Asia bought Independent Liquor for a reported $1.2b, a price rival bidder Lion Nathan found too rich for its tastes.

PEP will proceed with a Warehouse purchase only if its consortium can secure 100% ownership.

"The problem's going to be getting Woolworths to sell," said a market source. "They won't be interested in making a lazy $25-$50m and walking away."

Conversely, Foodstuffs may be more inclined to do so.

"Because of Foodstuffs' co-op structure and its Warehouse shareholding forming a large part of its corporate wealth, it will walk away at some point," he said.

The battle for control of discount retailer The Warehouse is expected to resume in earnest soon but no outcome is likely till the Commerce Commission has had its say.

Supermarket group Foodstuffs, which owns 10 per cent of The Warehouse, made an application to the commission just prior to Christmas to buy the company, though it said it was not committed to any course of action and was keeping its options open.

It is expected that Foodstuffs' rival Woolworths, which also has 10 per cent of The Warehouse, will make a similar application sooner rather than later.

The commission has given itself till February 28 to make a decision on the Foodstuffs application. Any application made by Woolworths could presumably be looked at in a similar timeframe.

Foodstuffs has about 57 per cent of New Zealand's supermarket trade and Woolworths the rest. Ownership of The Warehouse with its large, superbly located sites would give either of the supermarket competitors a huge boost in the battle against each other for market share.

The Warehouse founder Stephen Tindall holds the key to his company's future as he controls about 52 per cent of the stock. He has had discussions with both Foodstuffs and Woolworths and has conceded that he might end up selling his shareholding.

It is unlikely that Foodstuffs would look to bid for The Warehouse by itself. Foodstuff's unusual structure - it is three separate cooperatives - would make such a bid difficult to set up. The assumption in the marketplace is that it would set up a joint venture vehicle with Australian private equity operator Pacific Equity Partners.

PEP, which already has substantial business interests in New Zealand, was originally set to team up with Mr Tindall in a privatisation of The Warehouse. This was, however, torpedoed by the involvement of first Foodstuffs then Woolworths.

But with PEP already having conducted due diligence on The Warehouse and having arranged a funding package for a takeover, it could easily structure a deal with Foodstuffs to bid for the business. It is possible that such a bid, if it materialises, might also still include Mr Tindall as a shareholder.

If Mr Tindall retained a stake this might make a bid more palatable to shareholders - many of whom have followed the business for a long time and don't want to see it privatised.

Woolworths has said nothing publicly about its intentions toward The Warehouse, but is known to be interested in a full takeover. The Australian company has the size and muscle to fund a bid without needing any outside assistance. It is unlikely that Mr Tindall would retain a stake in The Warehouse under the terms of any Woolworths bid.

A key issue will be how much any of the players are prepared to pay for the company. The Warehouse shares doubled in price last year as a result of the takeover speculation.

However, the company's update to the market last Friday on its Christmas trading period painted a picture of a business still battling patchy trading. The Warehouse said its after-tax profit for the half-year to January 28 would be similar to the $59.1 million figure at the same time last year.

The shares fell 8 cents to $7 yesterday. Whether either Woolworths or Foodstuffs would want to pay much more than that to buy the company based on its current prospects is a key question.

However, neither Woolworths nor Foodstuffs is seen as wanting to yield the prize to their rival.

Mr Tindall indicated late last year he would like to see a resolution to the ownership of The Warehouse within six months. But there remains no certainty that a deal will be struck within that timeframe.

Investors smart enough to buy stock in Mainfreight in 2005 would have looked on in delight as the transport and logistics firm's share price more than doubled last year.

Mainfreight started 2006 worth $3.65 a share and has been as high as $8.15. It is now hovering just below $8. For the year to March, Mainfreight posted an after-tax profit of $29 million, up 115 per cent on the year before.

The good news continued in November with Mainfreight posting an after-tax profit of $14.75 million for the six months to September, up 42.8 per cent on the September 2005 half year, and announcing a special 28 cents a share dividend from the sale of its stake in Hirepool.

First NZ Capital analyst Andrew Mortimer puts Mainfreight's spectacular year down to the success of its diversification into higher growth markets such as Australia, Asia and the United States, and its ability to deliver high service levels into niches of those large markets.

"They didn't perform well when they started," he said. "They went through three years or so of losses and quite frankly a lot of people were asking what they were doing there. But they upped the ante, took some pretty high-risk strategies in terms of delivering service which cost them but ultimately it paid dividends."

Macquaries Equities analyst Warren Doak said that astute management and being able to leverage its dominant market position in New Zealand into offshore markets had driven Mainfreight's earnings growth and share price performance.

"A company can have a halcyon period for a short time without a solid management team," he said. "Mainfreight wasn't able to have its spectacular run in 2006 without building a strong platform in the years before that."

Mainfreight is dominant in New Zealand in the LCL - or less than container load - market and correctly picked that there was not a lot of room left for growth there, and instead looked overseas, Mr Doak said.

"They've said we can't afford just to be a New Zealand business anymore, because increasingly a lot of the transport decisions of our customers are being made on a trans-Tasman and an Asia-Pacific type basis and if we are unable to offer a transport and logistics offering in that golden triangle - the US, Australasia, Asia - we will get left behind.

"And the growth they are seeing in the offshore markets in turn feeds back into their core market."

But the company's share price was unlikely to double again this year, Mr Doak said.

"Mainfreight has now got to grow into itself and it's got to deliver. What people want to see now is the consolidation of those margin expansions."

Mr Mortimer believes 2007 will be another great year for Mainfreight. "It's a great company and a great New Zealand story."