Woolworths seen as front runner for NZ's Warehouse

By Adrian Bathgate

WELLINGTON (Reuters) - Australian grocery chain Woolworths Ltd's (WOW.AX: Quote, Profile, Research, Stock Buzz) deep pockets are likely to make it the frontrunner to buy New Zealand retailer The Warehouse Group Ltd (WHS.NZ: Quote, Profile, Research, Stock Buzz), whose controlling shareholder said on Friday he was open to offers.

Analysts said both Woolworths and local co-operative Foodstuffs are expected to bid for The Warehouse after a court cleared the way for them, in deal that could be worth up to NZ$2.64 billion ($2 billion).

But the Australian firm's ability to fund a takeover makes it the more likely to be successful, said Deutsche Bank analyst Kristan Walker.

"I can't go past Woolies, just because of the firepower of its balance sheet," Walker said, adding Woolworths would probably look to use a mix of debt and equity to fund a bid.

Woolworths has a market capitalization of about A$40 billion ($35 billion), while Foodstuffs is estimated to have a capital base of about NZ$1 billion. Both companies, who each hold 10 percent of The Warehouse, have said they are considering their options.

Shares in The Warehouse, New Zealand's largest listed retailer, closed on Friday up 1 percent at NZ$6.21, after surging almost 25 percent on Thursday following the court decision.

A number of brokerages have upgraded The Warehouse to buy, believing at least one bid to be imminent. Most analysts expect a successful bid to be well above NZ$7 a share, with Macquarie saying it could be as high as NZ$8.50, valuing the company at NZ$2.64 billion.

Warehouse founder Stephen Tindall said on Friday that he was open to offers.