FULL CIR­CLE BACK TO COUN­TRY ROAD

Finweek English Edition - - COVER -

SO WOOL­WORTHS had lit­tle op­tion but to give Lew what it seems he had al­ways wanted. It of­fered to buy him out of Coun­try Road at a very healthy price. The of f er was AUS$ 17 a share, a 21.4% pre­mium on the day be­fore clos­ing price of AUS$ 14/ share. Where Wool­worths re­vealed its hand i s that this off er was con­di­tional–sub­ject to its takeover of David Jones be­ing ac­cepted by share­hold­ers on 14 July.

That clearly put it in con­text of Lew’s hold­ing in David Jones. For Lew to take the money from Coun­try Road, he would have to sup­port the bid. And the deal is so good, that it’s fair for Wool­worths to as­sume that he will.

To get the full pic­ture of the pre­mium that Wool­worths is of­fer­ing, one only needs to go a lit­tle fur­ther back in time. Ex­actly a year ago, Coun­try Road could be bought f or AUS$ 3.50/share. That price hardly changed in months, and it was at AUS$3.54/share on 15 Novem­ber 2013.

I n other words, Wool­worths i s of­fer­ing a 380% pre­mium on the price Countr y Road was trad­ing at eight months ago. At this price, Lew’s stake would earn him AUS$207m. That f or a hold­ing t hat was worth i n the re­gion of AUS$43m in Novem­ber.

Look­ing even f ur­ther i nto his­tory, the last of­fi­cial of­fer Wool­worths made for Coun­try Road was the AUS$2 it put on the ta­ble in 1997. That was shortly af­ter Lew had built up his stake at a price of around AUS$1.65/share.

So, if Lew ac­cepts the deal, he would be look­ing at a ten­fold profit in 17 years.

“They had to get rid of him,” Vianello says. “They paid top dol­lar, but be­ing able to con­sol­i­date Coun­try Road and David Jones as whol­ly­owned sub­sidiaries into a sin­gle op­er­at­ing unit gives them the fi­nan­cial flex­i­bil­ity to achieve what they want to achieve.

“Lew is ob­vi­ously a win­ner be­cause he got what he wanted,” Vianello adds. “It cost him a bit of risk, but he’s a man pre­pared to tol­er­ate risk and he’s been do­ing it all his life. But in my book, Wool­worths is a win­ner, too. If you take the long-term view, I think what they are pay­ing now will seem like peanuts in 10 years’ time. And, of course, there will be no more ir­ri­ta­tion from Lew.”

So al­though the AUS$213m Wool­worths is pay­ing for the rest of Coun­try Road may seem like a steep ran­som, it’s prob­a­bly worth it in the end.

“It’s cer­tainly not a cheap deal,” Fairtree’s Pre­to­rius says, “but in isolation it’s not nec­es­sar­ily the worst thing for them to have done. They’ve been fairly good at al­lo­cat­ing cap­i­tal, and the 20% pre­mium on the price prior to the an­nounce­ment is a typ­i­cal type of con­trol pre­mium to pay.

“I think, in prin­ci­ple, it sim­pli­fies life for Wool­worths from a man­age­ment per­spec­tive to have 100% own­er­ship of the com­pany,” he says. “Clearly Coun­try Road is an en­gine for growth not only in Aus­tralia, but also in sup­port­ing growth in South Africa, so it’s a very im­por­tant part of the equa­tion.”

So per­haps the story will have a happy end­ing for ev­ery­one. Wool­worths should now be able to seal the David Jones deal and bring all of its Aus­tralian businesses un­der one roof. This will have sig­nif­i­cant long-term ben­e­fits.

As for Solomon Lew, the re­ward is a very im­pres­sive profit and the com­fort that his pa­tience even­tu­ally paid off.

“What his ul­ti­mate game plan was back in 1998, we never knew, al­though it was clear that he wanted Wool­worths to take him out at a much higher price,” Vianello says. “Be­cause he is a very wealthy man, and was able to stick it out, that is what he did.”

Syd Vianello

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