Buyout Firms Said to Approach Woolworths on $1 Billion Big W

  • Blackstone, KKR, TPG express preliminary interest in business
  • Supermarket chain's CEO announced retirement plans in June

Blackstone Group LP, KKR & Co. and TPG Capital have made preliminary approaches to Australian retailer Woolworths Ltd. to express interest in its Big W discount store chain, people with knowledge of the matter said.

The buyout firms have held early talks with Woolworths, as the retailer reviews its operations after its chief executive officer announced retirement plans in June, according to the people. The Big W chain could be valued at about A$1.5 billion ($1.1 billion), one of the people said, asking not to be identified as the information is private.

Discussions may not begin in earnest until a replacement for CEO Grant O’Brien comes on board, and there’s no certainty that Woolworths will be willing to part with the business, the people said. Big W, which competes with Wesfarmers Ltd.’s Kmart and Target outlets, operates 184 stores and accounted for 3 percent of Woolworths’s operating income in the year through June, data compiled by Bloomberg show.

“A sale would make sense because it’s such a small part of earnings,” Gareth James, an analyst at Morningstar Inc. in Sydney, said by phone Friday. “The core supermarket business clearly needs attention and that should be the main focus of the new CEO.”

Woolworths, which owns Australia’s largest supermarket chain, in June cut its full-year profit forecast and said O’Brien would retire after less than four years at the helm. The Sydney-based company named Gordon Cairns as its new chairman Aug. 28 as it unveiled its first drop in sales from its food and liquor stores since 2005.

Shares in Woolworths jumped 3.8 percent to A$27.81 at the close in Sydney trading Friday, the most in nearly two months. The benchmark S&P/ASX 200 Index rose 1.7 percent. Representatives for Woolworths, Blackstone, KKR and TPG declined to comment.

Fierce Competition

The Woolworths supermarket business has been struggling against competition from Wesfarmers’s second-ranked Coles chain, which has matched or outperformed its larger rival in same-store sales growth for 22 consecutive quarters. It also faces a threat from German discounter Aldi and is trying to turn around the loss-making Masters home improvement chain, which it jointly owns with U.S.-based Lowe’s Cos.

In August, Big W Managing Director Alistair McGeorge quit after a year on the job. The division’s operating income for the year through June fell 25 percent to A$114.2 million, Bloomberg-compiled data show. 

“Woolworths would have hoped they could sell it with improving earnings and margins, but if anything it is going the other way,” Morningstar’s James said.

KKR in 2006 led a group of buyout firms that offered A$18 billion for Coles Group Ltd. The offer, which was trumped by a higher bid from Wesfarmers, is still the biggest private-equity deal ever proposed in Australia, data compiled by Bloomberg show.

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