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Food wars down under

Fast thinking and fancy footwork from Metcash Trading, one of Australia's leading grocery businesses, have helped turn a vulnerable company into an acquisitive one. Chris Leahy reports.

THE INCREASINGLY CUT-THROAT business of food distribution and retailing is no place for the faint-hearted, with fierce competition and wafer-thin margins driving the need for scale and the demand for consolidation. Australia is no exception to this global rule and the scarcity of takeover targets coupled with the dominance of the top two retailers, Coles Myer and Woolworth, mean that the threat of being swallowed up is never far away for the following pack. Just ask National Foods, the subject of a fierce bidding war between food and beverage company San Miguel Corporation of the Philippines and New Zealand-based Fonterra Cooperative Group that has just been resolved in favour of San Miguel.

This explains why, when the controlling shareholder of grocery wholesaler Metcash Trading, South African-based Metoz Holdings, decided to sell its stake in Metcash, the Australian grocery wholesaler pounced to scoop up its own shares ahead of rivals.

"Metoz funded Metcash five years ago," says Chris Laing, head of equity capital markets for Metcash's adviser, Deutsche Bank. "They held 52% at a huge 30% discount to the underlying share price.

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