By  on July 7, 2014

SYDNEY — South Africa’s Woolworths Holdings Ltd. is a step closer to its $2 billion takeover of David Jones, despite concerns raised by Australia’s corporate watchdog in a failed Federal Court intervention on Wednesday.

In a statement released to the Australian Securities Exchange on Wednesday evening, David Jones said a Scheme meeting for shareholders to vote on the proposed 4 Australian dollar (or $3.78 at current exchange) a share offer from Woolworths would proceed on July 14 as planned, with the David Jones board continuing to unanimously recommend the WHL proposal in the absence of a superior proposal.

Earlier in the day, David Jones had sought Federal Court orders to issue Supplementary Disclosure to shareholders, explaining recent events pertaining to companies associated with Australian retail magnate Solomon Lew.

On June 24 — six days after it emerged that Lew’s private investment firm Australian Retail Investments had secretly acquired a potentially blocking 9.89 percent stake in David Jones — Woolworths offered to buy Lew’s 11.84 percent stake in midmarket retailer Country Road Ltd., in which Woolworths is the majority stakeholder, with 87.88 percent. Woolworths offered 17 Australian dollars ($16) a share, or about 209.2 million Australian dollars ($197.8 million).

Woolworths’ Country Road proposal was conditional on the David Jones deal going through. On June 30, WHL said the 17 Australian dollar a share offer was its best and final bid.

David Jones’ Federal Court application included a supplementary letter from independent corporate advisory group Grant Samuel & Associates stating that WHL’s takeover offer for David Jones is fair and reasonable — speaking to speculation that WHL’s offer to buy Lew’s Country Road shares posed potential collateral benefits issues.

The Australian Securities and Investments Commission appeared at Wednesday’s hearing as an amicus curiae or friend of the court, making a separate application requesting an independent review of the Country Road shares that are to be acquired under the bid in exchange for the bid consideration. ASIC has concerns the proposal potentially breaches Sections 602(c) and 623(1) of the Corporations Act.

In its court submission, the regulator noted, “ASIC suspects that the price of 17 Australian dollars per share for Country Road is in substance the offer of a benefit to a substantial shareholder during the scheme voting period for the purpose of inducing a shareholder to vote in favor, or remove themselves from the register, and has the potential to undermine the integrity of the scheme process as a method for effecting a control transaction.”

Justice Kathleen Farrell dismissed the application, ruling that David Jones was not required to obtain an independent valuation and that the Grant Samuel letter would suffice.

A second court hearing has been scheduled for July 17.

ASIC has said it has not ruled out further action — which may include withholding a letter of consent, appearing at the second hearing to raise matters for the court’s consideration and opposing the scheme.

Referring the matter to the Federal Takeovers Panel is another possibility. However, at press time the Takeovers Panel had not received any applications regarding David Jones and one mergers and acquisitions-specialist lawyer, who did not wish to be identified, said he thought this an unlikely scenario.

“I would have thought it would have gone to the Takeovers Panel by now if someone had felt aggrieved by it,” the lawyer noted. “It would be courageous of them [ASIC] to think that they’re going to get much more of a hearing on this. I don’t think Justice Farrell is a pushover.”

A spokesman for Lew did not return requests for comment. David Jones declined comment.

According to Wednesday’s ASX statement, David Jones has yet to hear from Lew about his voting intentions and the company has requested Lew not vote his 9.89 percent stake in David Jones at the Scheme meeting.

According to people familiar with the matter, should Lew refuse David Jones’ request and vote his shares, the company plans to “tag” his shares to analyze the impact on the Scheme vote.

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