Woolworths said in a statement to the Australian stock exchange that it sold its 8.8 percent stake in the company because it had “determined that the investment in [The Warehouse Group] is no longer required as part of its New Zealand strategy”.
The purchase was around $96.4 million below what Woolworths paid for its stake in September 2006.
The acquisition of Woolworth’s Warehouse Group shares doubles James Pascoe’s stake in the company to 16.2 percent.
James Pascoe first took a stake in the company in October last year and secured 305,000 Warehouse Group shares in January.
The purchase comes at a time when Warehouse shares have been struggling.
In January, shares were traded at a near two-and-a-half year low.
The Warehouse Group says it expects first-half earnings to drop about 20 percent to $37 million.
It said the company’s earnings have fallen due to unpredictable weather in spring and summer, which meant clothing and other seasonal merchandise had to be discounted at its ‘red sheds’.
Sales have also dropped at its Noel Leeming stores.
David and Anne Norman own the Auckland-based retail group James Pascoe.
The company is larger than the Warehouse Group, owning Whitcoulls, Farmers, Pascoes, Stewart Dawsons, Stevens and Goldmark chains in New Zealand and Australia.
JBWere NZ equity manager Rickey Ward told The Register that, while speculation is always dangerous, it is not impossible that The Warehouse Group founder Stephen Tindall could team up with the Normans to take the firm back to private ownership.
“Theoretically, all three of them are very friendly parties… I’m guessing it could well be a nice cosy marriage.”
However, Ward was also keen to point out that each of the investors involved has a reputation for being patient, meaning the move may not herald big changes anytime soon.
The Normans may simply have purchased their Warehouse shares because the company is an iconic brand similar to their own, and produces a sizeable cashflow, Ward says.
“I think there can be no denying that The Warehouse Group produces large cashflows. That’s what happens when you’re successful.”
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At NBR, Forsynth Barr’s Chelsea Leadbetter says the ‘red sheds’ are still the key contributor to the group’s profit.
“The chain has been a repeat offender behind recent downgrades despite significant capital invested in the store base. Strategic changes remain a work in progress and we have yet to see evidence of a sustained turnaround in profits. Declining earnings remain a concern.”
At the NZ Herald, Coriolis Research analyst Tim Morris says it’s unlikely anything will change at The Warehouse for some time.
“Nothing is going to change at The Warehouse until the larger shareholder [founder Stephen Tindall] decides he wants to sell. And Woolworths Australia would like to buy and that’s been in the cards for five years or so. But Foodstuffs also have 10 per cent,” Morris says.