Billionaire Lew Set to Get $197 Million in David Jones Spat

Australian billionaire Solomon Lew has spent 17 years blocking Woolworths Holdings Ltd. from taking full control of a local fashion chain. His intransigence is set to earn him a A$209 million ($197 million) payout.

Woolworths will pay A$17 a share to buy out Lew and other minority shareholders in clothing retailer Country Road, the Cape Town-based suitor said today. That deal will only go ahead if Lew and other shareholders in David Jones Ltd. support Woolworths’ separate $2 billion bid for their company.

Offering A$17 each for Country Road shares bought for less than A$4 will provide an additional inducement for Lew to accept Woolworths’ bid for David Jones. He’s blocked the South African retailer from taking full control of Country Road since 1997 through an 11.9 percent holding. A shareholder vote on the David Jones deal was delayed last week to assess the implications of him assembling a 9.9 percent stake.

“In poker terms, he’s made them raise without him having to raise,” Sam Fimis, a private client adviser at Patersons Securities Ltd., said by phone from Melbourne. “He knows what David Jones means to Woolworths and he’s created a problem for them, so they’ve had to react.”

Higher Valuation

The Country Road bid values the company at 21 times last fiscal year’s earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg. Woolworths and Lew together own 99.8 percent of the company’s stock, according to data compiled by Bloomberg, making it illiquid. The shares traded at a multiple of 6 about a year ago.

“This deal will substantially increase the probability that the David Jones deal will be approved,” Luis Colaco, an analyst at BPI Capital Africa, said by phone from Cape Town.

Lew is seeking to ensure the continuity of contracts such as that held by his Premier Investments company to supply Peter Alexander nightwear to David Jones, Colaco said.

Lauren Thompson, a spokeswoman for Lew at Domestique Consulting in Sydney, declined to comment. Woolworths said it’s “not engaged with any David Jones suppliers” and “will only do so when the deal is complete.”

Woolworths shares slid 1.4 percent to 77.35 rand at the close in Johannesburg. The South African company isn’t related to Woolworths Ltd., the supermarket chain that’s Australia’s biggest retailer.

Best Interest?

“I’m not convinced this is in the best interest of Woolworths shareholders,” Bruce Main, a fund manager at Ivy Asset Management Ltd., said by phone. He said he’s considering selling his Woolworths shares. “I’m worried Woolworths has overpaid and it’s then difficult to get decent returns. This smells more like ego than logic.”

Department-store operator David Jones climbed 4 percent to A$3.94 in Sydney trading, the biggest percentage gain since April 9. Woolworths offered A$4 a share in a takeover announced that date.

Country Road rose 17 percent to a record A$16.40, with just 652 shares changing hands.

“This is a common-sense and timely opportunity to seek to reach full ownership,” Woolworths Chief Executive Officer Ian Moir said in the statement today. “If successful, the offer will allow Woolworths to delist Country Road, allowing Woolworths to simplify its group structure and fully integrate the businesses.”

Building Stake

Lew spent about A$209 million buying 53 million shares in David Jones between May 9 and June 16, according to a June 18 regulatory statement. His Australian Retail Investments vehicle, which holds his 11.9 percent Country Road stake, has clashed with Woolworths since losing out to the South African company in a 1997 takeover battle for the chain.

Moir, a former chief executive of Country Road, wants to take on fast-fashion retailers such as Inditex SA and Hennes & Mauritz AB through his takeover of David Jones, Australia’s largest department-store chain by market value. In an April 9 media call announcing the bid, he promised to bring management expertise from the apparel chain to David Jones, which has 38 department stores throughout Australia.

“We sell more online in Country Road than David Jones does at the moment,” he said. “We’ll bring those systems, those processes, those skills to bear within the David Jones environment.”

At least 75 percent of votes cast at a July 14 shareholder meeting must support the David Jones offer if it is to push through. The low turnout at such meetings gives Lew an opportunity to block any deal even if he has less than 25 percent of David Jones shares, the Australian newspaper reported June 17 without saying where it got the information.

“He’s been very clever over the years in terms of being able to get people’s goat in a profitable way,” Patersons’s Fimis said. “Ordinarily he should say, ‘A$17 a share is quite good,’ but if he really wants to be a pain he can turn around and say ‘I want A$18’.”

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