Aus­tralia’s WILY OLD FOX

THE THORN IN WOOL­WORTHS’ SIDE

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THE STORY STARTS in the pre­vi­ous mil­len­nium, back in 1997 when Lew be­gan build­ing up a po­si­tion in the un­der­per­form­ing Aus­tralian fash­ion brand Coun­try Road. Lew was al­ready an es­tab­lished name in the lo­cal re­tail in­dus­try, as the past chair­man of Coles Myer.

Lew was widely known as a mav­er­ick self-made mil­lion­aire. He had taken con­trol of his fa­ther’s small re­tail busi­ness in 1964 at the age of 18 and grown it into a net­work of whole­sale businesses and cloth­ing stores.

Then in 1982 he paid AUS$32m for 10% of t he st r uggling Myer depart­ment store to pro­tect it from a hos­tile takeover. He was a ma­jor sup­plier to Myer at the time. As the share price was de­pressed, he paid an ex­tremely at­trac­tive price for his stake.

He had built his hold­ing up to 13% by 1986 when Coles pro­posed a merger, and by 1991 had taken over as chair­man of the con­sol­i­dated group. His ten­ure, how­ever, came to an in­aus­pi­cious end in 1995 when he was in­volved in a shady af­fair that in­volved a deal with his pri­vate com­pany Pre­mier In­vest­ments. He lost the chair­man­ship, but re­mained on the board by con­tro­ver­sially ‘rent­ing’ shares from a num­ber of in­sti­tu­tional in­vestors to boost his voting power.

He didn’t stay out of the pic­ture for long though, and was soon look­ing for a new ven­ture. That is when Coun­try Road caught his eye. Like My­ers 15 years ear­lier, Coun­try Road was a busi­ness in trou­ble and Lew saw the op­por­tu­nity to make an ac­qui­si­tion at a big dis­count. So he bought into the busi­ness, wait­ing for the right mo­ment to strike. COUN­TRY ROAD What Lew per­haps didn’t an­tic­i­pate was an in­ter­est in the same busi­ness f rom South Africa’s Wool­worths. Look­ing for an en­try into the Aus­tralian mar­ket, Wool­worths saw the op­por­tu­nity and put in a bid for the whole com­pany.

It was a move that cer­tainly rubbed Lew the wrong way.

“He was prob­a­bly sit­ting with his foot on that Coun­try Road stake, think­ing that he would take it over,” says Aus­tralian re­tail an­a­lyst Martin Dun­can of Arn­hem In­vest­ment Man­age­ment in Mel­bourne. “But then along came Wool­worths to stuff up his idea of buy­ing it.

“So, in typ­i­cal fash­ion he thinks, ‘ Bug­ger you bas­tards, I’m go­ing to block your bid,’ and he takes his stake to over 10% to pre­vent Wool­worths from mak­ing a full com­pul­sory ac­qui­si­tion.”

Un­der Aus­tralian law at the time, any en­tity that owned 90% or more of a listed com­pany could force mi­nori­ties to sell to them. That was al­ways Wool­worths’ i nten­tion, but Lew wouldn’t budge.

“Lew ref used to ac­cept Wool­worths’ of­fer,” ex­plains vet­eran re­tail an­a­lyst Syd Vianello. “Be­cause he had more than 10% they couldn’t get rid of him, and he be­came a thorn in their f lesh.”

Lew used his share­hold­ing to very pub­licly ques­tion the man­age­ment of Coun­try Road and the di­rec­tion the com­pany was tak­ing. For years Wool­worths strug­gled to turn the busi­ness around and he made sure ev­ery­body knew about it.

Wool­worths’ cur­rent CEO Ian Moir was the head of Coun­try Road dur­ing those years, and he was reg­u­larly hav­ing to fend off at­tacks. Lew sent rep­re­sen­ta­tives to Coun­try Road AGMs to ask an­tag­o­nis­tic, scripted ques­tions of Moir and would put out me­dia state­ments con­demn­ing de­ci­sions made by com­pany man­age­ment.

“He even used to send out a cor­po­rate f inancier over to South Africa ev­ery year to put the Solomon Lew case for­ward – that Wool­worths was mess­ing up Coun­try Road,” Vianello re­calls. “He never had a good thing to say about the way the busi­ness was run.

“All he ever did was com­plain, but there was a game plan in mind,” Vianello says. “Maybe he thought that by com­ing out to South Africa and up­set­ting a lot of in­sti­tu­tional in­vestors, maybe Wool­worths would sell to him or of­fer to buy him out at

his price. He wanted to up­set Wool­worths to the point where they would pay to get rid of this ir­ri­ta­tion.”

Wool­worths, how­ever, was de­ter­mined to make a suc­cess of Coun­try Road and its Aus­tralian ven­ture. Lew had no op­tion but to be pa­tient.

“He thought I’ll just sit here for as long as it takes,” Dun­can says. “He knew that even­tu­ally they would have to pay to get him out.”

WITCH­ERY Over the years, how­ever, the icy re­la­tion­ship be­tween Lew and Wool­worths thawed a lit­tle. As Coun­try Road picked up and started reporting healthy earn­ings, Lew had less to com­plain about. In fact, the t wo par­ties even be­came cor­dial.

“I know that Si­mon Sus­man de­vel­oped some sort of re­la­tion­ship with Lew while he was CEO of Wool­worths,” Vianello says. “When­ever he went to Aus­tralia he would meet him and they would have tea and cof­fee. So re­la­tions had im­proved and they were pre­pared to talk to each other.”

But then along came 2012 and the Witch­ery deal.

This Aus­tralian fash­ion brand was owned by Gre­sham Pri­vate Eq­uity at the time. It had bought the busi­ness from Solomon Lew’s in­vest­ment com­pany in 2006. Then, six years later, Coun­try Road ar­rived with an of­fer to buy it.

“What a t urn­about,” Arn­hem’s Dun­can says. “Lew sells Witch­ery to Gre­sham and, what do you know, Gre­sham sells it to Coun­try Road. So he’s think­ing, ‘ Bug­ger, I’ve just sold this and now I’m back in it again.’”

Lew t hen ret urned to rant­ing against Wool­worths. He crit­i­cised the ra­tio­nale for the ac­qui­si­tion and the pro­posed ap­point­ment of Witcher y ’s CEO to r un t he com­bined en­tity. He even sent a le­gal let­ter to the Coun­try Road board ac­cus­ing it of not pro­vid­ing enough in­for­ma­tion for share­hold­ers to as­sess the mer­its of the takeover.

But, once again, Wool­worths stared him down.

“It was a good deal for Wool­worths, but they had to f inance it through a rights is­sue,” Vianello says. “Lew put up a huge fuss, but Wool­worths de­cided to call his bluff. They ba­si­cally said that if you don’t like the busi­ness, then you don’t have to fol­low your rights. And guess what? He fol­lowed his rights.

“Be­cause i f he didn’t, his stake in Coun­try Road would have fallen be­low 10% and t hat would have al­lowed Wool­worths to buy him out at a dis­count. So as much as he was crit­i­cis­ing Wool­worths, the end re­sult was that he backed the deal be­cause he had to put up the money.”

DAVID JONES In 2014 Wool­worths, look­ing to grow its in­ter­na­tional pres­ence and achieve greater scale, put for­ward an of­fer for Aus­tralian fash­ion re­tailer David Jones. Not a busi­ness in heaps of trou­ble, but David Jones had some prob­lems and Wool­worths saw the op­por­tu­nity to cre­ate syn­er­gies with its ex­ist­ing brands.

From the start, Solomon Lew was in the back­ground. He is a sup­plier to David Jones and in the past had held a fairly sig­nif­i­cant stake.

But no­body an­tic­i­pated the real op­por­tu­nity he would see i n t he R22.4bn of­fer Wool­worths made. Lew, be­ing who he is, re­alised that his chance had come.

“Solomon Lew is a wily old fox,” says Dun­can. “He knows how to cut a piece of cloth to suit his own needs rather than oth­ers’.

“So he rapidly as­sem­bled a 10% stake, and pos­si­bly even more, and ba­si­cally threat­ened to do the same

Solomon Lew

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