Australia’s WILY OLD FOX
THE THORN IN WOOLWORTHS’ SIDE
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