Adamantem Capital launches bid to take over Warehouse Group

Tuesday, 23 July 2024

Adamantem Capital proposes to acquire all Warehouse Group shares.

The Warehouse Group has received a proposal from Australian private equity firm Adamantem Capital to acquire all of its shares.

Adamantem Capital plans to acquire the shares at a price range of $1.50 to $1.70 per share. If approved, the move will see the company de-list from the NZX and return to private ownership.

Warehouse founder Sir Stephen Tindall supports the takeover proposal and he, and his associated Tindall Foundation, will retain a shareholding in the company through a reinvestment scheme.

Current shareholders in The Warehouse Group will be required to vote to approve the proposal.

Tindall already owns a 27% stake in the company and the Tindall Foundation a 21.3% stake.

Tindall started The Warehouse in 1982.

Sir Stephen Tindall will work with Adamantem Capital.

The proposal must be passed by a majority of 75% of independent shareholders in each interest class for the takeover deal to proceed.

A sub committee of the board comprising chair Joan Withers and independent directors Tony Carter and Dean Hamilton has been set up to consider the proposal and work through the next steps.

The Warehouse Group has appointed Jarden to advise it on the proposal, and is looking to appoint an independent expert to evaluate the merits.

The company has been contacted for comment.

If the proposal goes ahead, retail commentator Chris Wilkinson said a new ownership structure could allow Adamantem Capital and Sir Stephen Tindall to move the group towards a third supermarket player to take on Foodstuffs and Woolworths, which dominate the grocery sector.

The Warehouse revisited grocery retailing about four years ago after a failed attempt from 2006-2009. Over the past four years it has ramped up its efforts, and now sells a wide range of groceries, including pantry staples, fresh produce, frozen and chilled goods.

The company has been vocal about its desire to delve more into this category, and former chief executive Nick Grayston previously said the group could deliver groceries that were up to 25% cheaper than what was available elsewhere in the market.

Grocery sales make up 20% of all sales at the red shed Warehouse stores.

Wilkinson believes a push towards more grocery retailing and a new ownership model was needed to turnaround the troubled retailer.

The Warehouse has been focused on expanding its grocery ranges.

The Warehouse Group has struggled with declining sales and profitability post-pandemic, and is bracing for another drop in earnings.

It expects its 2024 full year earnings to be 6% to 7% lower than last year, with earnings before interest and tax to be in the range of $22 million to $30m, compared to $83.4m.

Wilkinson said it could regain its footing, profitability and competitive edge by establishing itself similarly to the UK-based general merchandiser The Range, which sells groceries from supermarket brand Iceland.

“How they've used Iceland to pull people in [to stores] on a regular and habitual basis, that's what The Warehouse misses at the moment,” said Wilkinson.

Chris Wilkinson says a change to private equity ownership could be what The Warehouse Group needs to turn around its business.

“If you get people coming in on a regular habitual basis for groceries, then they’re going to buy other products. At the moment, people are only going to The Warehouse on a need-only basis; you don't necessarily need to buy stuff for the garden or clothing or homewares every week, so that could create a significant step change for The Warehouse. If they were able to deliver grocery in a really good way that would give them an advantage over competitors.”

The Warehouse needed “significant moves” and investment to change the current predicament of the business, which private equity could offer, Wilkinson said.

“It’s going to need fairly significant investment to create store environments that are going to win back customers and also deliver a bigger move into the grocery.”

While some may be saddened if the proposal was to go ahead and the company de-listed from the NZX, Wilkinson said the reality was it had been managed by overseas leadership at the helm in recent years.

“Retail at the moment is at its most dynamic ever. A private equity company will certainly see opportunities for more efficiencies that it can gain and future positioning within the resilient retail categories, which are grocery.”

Wilkinson said The Warehouse Group would benefit from having Tindall offer institutional knowledge to Adamantem Capital.

“When Stephen Tyndall was involved in the business it had a real challenger mindset. The Warehouse was an organisation that we're doing things differently, championing New Zealand products, it was going into areas and revitalising them and bringing new concepts.

“When it moved into the corporate model, it kind of morphed from that challenger of mentality. Briscoes very much still has that challenger mentality and it continues to serve it well.”

Tindall would be atune to the market and global trends that would no doubt be beneficial insight for Adamantem, he said.

“The one caveat will be that the private equity company will be looking actively at efficiencies that it can gain, in terms of store network, overheads, the way it works. That’s been a hallmark of private equities and their investments in retail in recent years.”