Wine battle on horizon as Woolies drinks up

Woolworths has unveiled a $340 million deal to buy dominant direct wine merchant Cellarmasters. Source: Herald Sun

RETAIL goliath Woolworths again faces the scrutiny of Australia's competition custodians after unveiling a $340 million deal to buy dominant direct wine merchant Cellarmasters.

The anti-trust watchdog has confirmed it will review the acquisition amid concerns it threatens to undermine competition in the liquor marketplace and heap further pressure on independent vineyards.

Woolworths, which owns liquor chains Dan Murphy's and BWS, announced the deal with Archer Capital, ending the private equity group's protracted campaign to sell the wine retailer.

The revelation coincided with a statement from Woolworths all but confirming speculation that chief executive Michael Luscombe would soon retire.

Woolworths "has had for some time an established process for succession planning", the statement said, adding that the market would be notified about any developments "at the appropriate time".

"This plan is following our previous format of selecting and announcing the next CEO well in advance of the planned succession," it said.

It came as Woolworths revealed that first-half profit growth clocked in at about 6 per cent - the lowest level in more than a decade. The group posted a net profit of $1.162 billion for the 27 weeks to January 2, up from $1.096 billion in the same period a year earlier.

A strong performance in the group's supermarkets division fuelled the increase in a period when sales fell heavily at electronics retailer Dick Smith and discount department store chain Big W.

Credit Suisse retail analyst Grant Saligari said the result had been "well flagged", with Woolworths last month issuing its first profit warning since the 1990s.

"The discretionary businesses were weak as expected, reflecting the difficult trading over Christmas, and supermarkets was typically fairly solid," Mr Saligari said.

Cellarmasters, which has a market share of direct-to-home wine sales of 25-30 per cent, was "a good bolt-on" for Woolworths' liquor business, he added.

Australian Competition & Consumer Commission chairman Graeme Samuel told BusinessDaily that it was a significant acquisition that would be subject to the "normal review" process.

"Particularly when we are dealing with Woolworths and Coles, we have tended to examine them (acquisitions by the retailing giants) fairly carefully," Mr Samuel said. "We will also look at it from the point of view of (wine) suppliers."

Mr Luscombe signalled that Woolworths was confident that the deal would be approved, saying Cellarmasters was a "totally separate channel".

Woolworths has been the subject of other ACCC enquiries in recent years - albeit without serious ramifications - including investigations into the impact of petrol discounting and its push into hardware. Shares in the group closed 1.3 per cent higher yesterday at $26.85.

The retailer will pay an interim dividend of 57c per share, franked at 30 per cent, on April 29.