For some reason the market gossip about private equity interest in Woolworths (WOW) won’t go away – not for the entire company (which would be a very rich dish at close to $53 billion).
Woolies shares jumped 3.8% to $24.63 yesterday on media reports that that global private equity giants TPG and The Blackstone Group have teamed up to consider a joint bid for the retailer’s poorly performing Big W department store chain.
Other media reports said the Woolworths board had not received a takeover approach for the entire company, which is probably why the shares did not run and run higher.
The rumours emerged a week or so ago, died and then returned yesterday. Woolies holds its AGM this week. At this stage they are rumours and given the weak performance of Big W it is hard to see anyone really interested in buying it, except at a knockdown price.
Big W is intimately linked into Woolies management and logistics systems and would prove very hard to separate from the overall group without additional costs being incurred by any buyers.
The underperformance of Big W, the black hole that is the Masters hardware business and weak sales in its core supermarklets business in Australia, are behind the 20% fall in its share price this year.
WOW vs WES 2Y – Is private equity stalking Woolies?
The company is still searching for a new chief executive after Grant O’Brien announced his departure in mid June.
It has a new chair in Gordon Cairns who will have a big sales job at the AGM in Sydney on Thursday.
Big W has been struggling with sluggish sales and behind rival retail chain Kmart, which is owned by Coles’ parent company Wesfarmers.
Kmart’s same store sales rose 8.6%, while Woolworths’ general merchandise same store sales, mainly made up of Big W, fell 8.1%.
Even Target, the struggling department sore chain also owned by Wesfarmers, did better than Big W with a 3.2% rise in comparable store sales in the first quarter of 2015-16.
The speculation about a Big W deal comes on the heels of last week’s rumour of a possible tie-up between Woolworths’ Home Timber & Hardware business and Metcash’s Mitre 10.
And yesterday afternoon, Woolies confirmed another recent rumour when it announced that it had appointed former CEO Roger Corbett as an adviser to the retailer’s board.
Mr Corbett was the supermarket giant’s chief executive from 1999 to 2006. He remained a consultant up to 2011. He will advise the board from December 1.
"Mr Corbett will advise the board on issues relating to the performance of the company and business improvement opportunities," a statement from Woolworths said.
"He will also be a mentor to senior management."
Prior to leading the group, Mr Corbett was a Woolworths executive director and managing director of BIG W in 1990 and head of retail for the group from 1997 to 1999.
Chairman Gordon Cairns said in the statement that Mr Corbett was uniquely placed and eminently qualified to provide insight and advice to both the board and senior management as Woolworths undergoes a transformation.
