3 to become 1

This morning Woolies announced that they have made an offer for the outstanding 12% of Country Road, which is listed in Australia. The offer is at a premium of 21.4% to yesterday's closing price, will value the offer at A$213 million, which based on today's Aussie Dollar of R9.99 (let's call it R10) is R2.13 billion.


The reason for the offer is due to an Australian business man named Solomon Lew, who has been a thorn in the Woolworths side since they tried to delist Country Road back in 1997. Solomon Lew owns the majority of Country Road shares that Woolies doesn't own and has been blocking a delisting.
The other big deal on the table for Woolies is the purchase of David Jones, where they have already had the voting date for the deal pushed back by two weeks due to Lew. Lew owns 10 – 15% of David Jones and threatened to block the purchase.


Part of the condition on the offer for Country Road is that the David Jones deal goes through, which means that it is in Lew's interest not to upset the apple cart. The rationale for Woolies was that they had to offer a big enough premium to Lew on the Country Road shares so that he wouldn't turn down the offer. They would rather "overpay" on a A$200 million deal than have to raise their price on the A$2.2 billion David Jones deal.


All in all, owning 100% of a company is much better than owning 88% and the funds for the purchase will come from Australian banks, which Woolies say will not impact on their dividend. The share price has not done much on the news, unlike when the news of David Jones came out and the share price dropped below R70 a share. Currently the share price is around R78 which will means that Woolies will be able to offer fewer rights to raise the cash to complete the David Jones purchase. So a higher share price does not only look god on your statement but will also mean you as a shareholder gets less diluted with the rights offer down the road.

If all goes according to plan David Jones and Country Road will fall wholly in the Woolies stable, adding 40% to the current market cap and in the process creating the Southern Hemisphere retailer desired.