To save its $2.15 billion agreed takeover bid for David Jones (DJS), Woolworths from South Africa has launched a $17 a share bid for the outstanding shares it doesn’t own in Country Road (CTY), much of which are owned by Solomon Lew and his private retailing group, Australian Retailing Investments.
The bid for the outstanding stake in Country Road will cost around $213 million, with much of that flowing to Mr Lew for his 11.88% stake.
The bid is conditional on the Woolworths bid for David Jones not being derailed at the adjourned shareholders meeting next month.
That means to get his money for his Country Road stake, Mr Lew will have to vote his near 10% stake in David Jones in favour of the merger, which is being conducted through a scheme of arrangement. He will then have the chance to accept the Country Road offer.
That will take out the potential that Mr Lew could have used his stake to defeat the deal.
It remains uncertain though if Mr Lew can now vote his shares.
Because of the Woolworths bid for Country Road, he could be deemed to be an associate of the South African company, and therefore unable to vote at the July 14 meeting.
Woolworths already holds 88% of Country Road. Apart from Mr Lew’s stake the remaining shares are held by 179 individual holders.
Woolworths made a $2 a share takeover offer for Country Road in 1997, but Mr Lew built a blocking stake, preventing Woolworths from taking full control.
But the South African company also refused to buy Mr Lew out of the company until yesterday.
Country Road shares have soared from $4.83 in January to a record $15.40 in March, a fortnight before Woolworths unveiled its $2.2 billion offer for David Jones.
CTY 1Y – Woolworths spends $213m on CTY to save $2.15bn DJS bid
Much of the early rise in the share price rise did not come from the bid speculation, but from a sharp improvement in sales growth and earnings at Country Road, especially from the Witchery and Mimco chains which were acquired 17 months ago.
Witchery was owned by Mr Lew up until 2006 when he sold it to the private equity group, Gresham, which in turn sold it to Country Road last February.
The impact of the rising sales and earnings from both chains have seen Country Road’s bottom line improve dramatically, especially in the December half year.
But seeing so many clothing retailers are being hurt by the warm autumn and weather and the downturn in consumer confidence post the Federal Budget, it wouldn’t surprise if Country Road provides an update to the market.
One other snag besides the voting question is whether the Country Road bid gives Mr Lew what are called collaterall benefits in the David Jones bid that are not going to be available to other shareholders in DJs.
Under corporate laws governing takeovers and mergers, a bidder must not give a benefit to a person where that benefit is likely to induce him to accept the offer and where the benefit is not offered to all shareholders.
But collateral benefits rules apply to takeover offers, not schemes of arrangement which is how the DJs deal will be done by Woolworths.
But the Australian Securities and Investments Commission and the Takeovers Panel believe the principles behind collateral benefits should also apply in schemes – so it may need a clear ruling from both groups to sort out the situation.
David Jones shares rose 3.9% yesterday to $3.94 as investors upgraded the chances of the $4 a share Woolworths bid succeeding.
Country Road shares rose 17.1% to $16.40 on turnover of just 652 shares. Someone couldn’t wait for the Woolworths’ $17 a share offer.
