By  on June 24, 2014

SYDNEY — Woolworths Holdings Ltd. has made a $201 million offer to buy out Australian retail magnate Solomon Lew’s shares in midmarket fashion retailer Country Road in what is being considered the latest twist in the South African company’s $2 billion offer for department store chain David Jones Ltd.

Cape Town-based Woolworths already owns an 87.9 percent stake in Country Road. Since 1997, Lew has owned an 11.9 percent stake in Country Road, blocking WHL’s full takeover of the company.

Lew is also an investor in David Jones. According to market speculation and press reports, Lew has been threatening to block the David Jones acquisition unless Woolworths acquires his Country Road stake.

Representatives of Woolworths were unreachable for comment at press time. A spokeswoman for Solomon Lew declined comment.

Woolworths chief executive officer Ian Moir said the Country Road acquisition is strategic. “In light of the proposed acquisition of David Jones, this is a common sense and timely opportunity to seek to reach full ownership of Country Road. If successful, the offer will allow WHL to delist Country Road, allowing WHL to simplify its group structure and fully integrate the businesses,” he said.

Woolworths said Tuesday it intends to make an all-cash offer for 213 million Australian dollars, or $201 million at current exchange, to acquire all of the ordinary shares that it does not already own in Country Road Ltd. at a price of 17 Australian dollars, or $16, a share — at a premium of 21.4 percent to the closing price of Country Road shares on Monday.

The announcement comes five days after David Jones was forced to postpone a crucial shareholder vote on a 2.15 billion Australian dollar, or $2 billion, takeover offer from WHL when it emerged that Australian Retail Investments, Lew’s private investment company, had acquired 9.89 percent of David Jones shares, having covertly paid approximately 200 million Australian dollars, or $187 million, for 53.1 million shares in recent weeks.

A planned meeting of David Jones shareholders is scheduled for July 14, but could be further delayed.

Woolworths’ Country Road offer is subject to conditions, including the David Jones scheme of arrangement with WHL becoming effective and Foreign Investment Review Board approval.

“There is speculation that Lew wanted $16 a share for Country Road and Woolworths has now gone to him with $17 a share. That’s obviously a good sweetener and a sweetener that suggests Woolworths is dead serious about getting this deal done at almost any cost,” said IG market strategist Evan Lucas.

“The way this has panned out, it looks like he has forced them into buying out Country Road so that he will let the David Jones deal go through. He was playing Woolworths for his Country Road stake and to get a massive payout, and it looks like that’s going to be the case.”

Woolworths’ Country Road offer, however, could potentially pose collateral benefits issues and jeopardize the David Jones scheme of arrangement.

Under Section 623 of Australia’s Corporations Act (2001), a bidder or an associate must not, during the offer period for a takeover bid, offer or agree to give a benefit to a person if the benefit is likely to induce that shareholder to accept the bid or sell their shares and if the offer is not offered to all other target shareholders under the bid.

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