Woolies buys another business down under

There is a significant announcement from Woolies this morning, and whilst not earth shattering, it was met with a pinch of scepticism in the office. Country Road today announced that it has entered into an agreement to acquire the Witchery Group from Gresham Private Equity for A$172 million. Now Country Road of course are the Australian subsidiary of Woolies, they own 88 percent. The purchase is going to be funded part through a rights issue by Country Road, which Woolies have indicated that they will follow theirs of course, and a debt facility of 92 million Aussie Dollars. But 172 million Aussie, that is a lot of money. One Aussie Dollar is 8.66 ZAR. At the current exchange rate that is 1.489 billion Rand, or when put into perspective, 3.5 percent of their current market capitalisation, not a big deal, but sizeable nevertheless.


The stock is up ahead of the market, just a little ahead of the market, but that tells me what I need to know. The reception of a piece of news is often the short term telling, in terms of the voting machine. Remember the old words from one of the greatest stock analysts of all time, Benjamin Graham. He said that in the short term the market is a voting machine, whilst in the long term the market is a weighing machine. You can't lie about the votes, but you can't fake your weight either, no matter how many votes you get. Capiche?


They have done well recently in their food division, clothing retailers are really a dime a dozen. And even if they seemingly do it well in Australia with this new (managed) venture, that is a very tough environment. Perhaps that was the scepticism. You can read via the GRESHAM PRIVATE EQUITY FUND NO. 2 description of the purchase at the time, why it made sense to Gresham, the private equity sellers. There is not too much information available in Aussie, but I did find this article Country Road snares Witchery for $172m, which suggests that Country Road got a good deal "in this current environment". Perhaps Gresham were forced sellers.