FULL CIRCLE BACK TO COUNTRY ROAD
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.”