Woolworths yesterday offered to buy Lew out of Country Road at a premium of A$17 a share, handing Melbourne-based businessman Solomon Lew a A$188mn profit and removing his implied threat to the David Jones takeover
Reuters/Sydney
Australian billionaire Solomon Lew effectively ended a 17-year standoff with South Africa’s Woolworths Holdings yesterday with a deal that will have the department store firm buy him out of two investments at a massive profit.
With a A$200mn ($188mn) gamble, Lew positioned himself to block the South African firm’s A$2.2bn takeover of Australian rival David Jones by amassing almost 10% of the target’s stock in little more than two weeks.
The David Jones gambit gave Lew a huge bargaining chip to negotiate an exit from another Australian investment, clothes retailer Country Road, in which he held an 11.88% stake alongside controlling shareholder Woolworths.
Woolworths yesterday offered to buy Lew out of Country Road at a massive premium of A$17 a share, handing the Melbourne-based businessman a A$188mn profit and removing his implied threat to the David Jones takeover.
Lew bought the Country Road shares for about A$2 each in 1997 in a successful effort to frustrate Woolworths’ attempted takeover of that company. And he bought his David Jones shares for an average A$3.90 each, compared with Woolworths’s A$4offer price.
If he accepts Woolworths’s A$213mn offer for his Country Road stake, worth just A$59mn in January, and sells into its David Jones offer, Lew will not just pocket a tidy profit but prove once more he is one of Australia’s wiliest and most patient investors.
“He had them where he wanted them and if they wanted David Jones they had to pay up,” said Lonsec senior client adviser Michael Heffernan.
David Jones shares, which have traded below the Woolworths offer price as Lew’s holding hovered over the deal, rose 4.09% to A$3.95, while Country Road jumped 21% to A$16.99 as investors bet on Lew taking up the offer.
One South African institutional investor in Woolworths, who declined to named, said the Cape Town-based company was already paying too much for David Jones, whose sales have been going backward for three years and which operates in a slow and competitive market.
“It’s excessive,” the investor said. “I cannot understand why (Woolworths chief executive Officer) Ian Moir is so desperate to get this David Jones deal through.”
The Country Road deal, which Woolworths says is conditional on sealing the David Jones transaction, would add an extra 2bn rand ($188mn) to the total costs of its stated ambition to become one of the top southern hemisphere retailers.
Lew, who has had public spats with Woolworths over the running and strategic direction of Country Road, is regarded by many as a thorn in the side of Woolworths after blocking the firm from buying all of and delisting Country Road for 17 years.
“Buying out minorities in Country Road is what Woolworths wanted anyway and it makes sense to pay a 21% premium on a 2bn rand deal (rather) than risk jeopardising a 20bn rand deal,” said Jean Pierre Verster, a fund manager at Johannesburg-based investor 36One Asset Management.
The offer, if Lew accepts it, marks another remarkable chapter in a career defined by shrewd, audacious investments.
Most notably, he bought into David Jones rival Myer in the 1980s at what was reported to be a bargain price. He then gradually built his stake so that he had about 6% of retail conglomerate Coles Myer when it sold supermarket chain Coles Group to Wesfarmers for A$20bn in 2007.
Newly minted Lew then established retail-focused Premier Investments, which quickly paid A$821mn for Just Group Ltd, owner of several well-known clothing brands such as Just Jeans, Jay Jays, Portmans, Dotti and Smiggle.
That company is now worth an estimated three times that amount, according to Australian media.Neither Woolworths nor Lew would comment on the Woolworths offer for the Country Road shares.
Woolworths said in a statement to the Australian Securities Exchange only that it hoped to reap “synergy benefits” from owning all of Country Road and David Jones.
“In light of the proposed acquisition of David Jones, this is a common sense and timely opportunity to seek to reach full ownership of Country Road,” Moir said in the statement. “If successful, the offer will allow (Woolworths) to delist Country Road, allowing (Woolworths) to simplify its group structure and fully integrate the businesses.”
A spokesman for Lew could not be reached for comment and Lew’s listed retail investing business, Premier Investments, made no comment on its David Jones share raid other than a May 26 regulatory filing to say it had bought the shares.