Woolworths’ David Jones Deal in Limbo

Retail magnate Solomon Lew has amassed a 9.9 percent stake in the Australian department store chain.

SYDNEY — South Africa’s Woolworths Holding Ltd.’s $2 billion takeover bid for Australian department store chain David Jones is under threat.

This story first appeared in the June 20, 2014 issue of WWD.  Subscribe Today.

In a statement to the Australian Securities Exchange late Thursday, David Jones announced it had applied to the Federal Court for a two-week extension on a crucial shareholder meeting that was originally scheduled for June 30, to allow time to assess the implications of Wednesday’s filing of a substantial shareholder notice by Australian Retail Investments Pty. Ltd.

Australian Retail Investments is the private investment company of Australian retail magnate Solomon Lew, who now owns 9.89 percent of David Jones shares, having covertly paid approximately 200 million Australian dollars, or $187 million at current exchange, for 53.1 million shares in recent weeks.

David Jones operates 38 stores across Australia.

On April 8, the company blindsided the market by announcing its board had recommended a 4 Australian dollar, or $3.73 at April exchange, per-share takeover offer from the South African retail group, valuing David Jones at 2.15 billion Australian dollars, or $2 billion, a 25.4 percent premium to David Jones’ closing price that day and a 39.4 percent premium on the price of David Jones shares on Jan. 30.

The David Jones shareholders meeting has been rescheduled for July 14.

On Tuesday, at an extraordinary general meeting in Cape Town, Woolworths shareholders overwhelmingly approved the acquisition and a 1 billion Australian dollar, or $934 million, capital raising to fund the takeover.

“In the absence of a superior proposal, David Jones shareholders vote in favor of the WHL Proposal,” David Jones said in a statement Thursday. “As at the date of this announcement no superior proposal has emerged, accordingly the David Jones directors intend to vote all the David Jones shares held or controlled by them in favor of the WHL Proposal.”

Lew is the chairman and non-executive director of Melbourne-based Premier Investments Ltd., whose Just Group retail conglomerate owns the Just Jeans, Jay Jays, Portmans, Jacqui E, Peter Alexander, Dotti and Smiggle brands and operates more than 1,000 stores across Australia, New Zealand, South Africa and Singapore.

Although Lew has so far declined comment on his reasons for the purchase of the David Jones stake, he has history with Woolworths.

Since 1997, Lew has blocked Woolworths from taking a full takeover of Australia’s Country Road Ltd. chain via an 11.8 percent stake that he refused to sell.

“Lew is his own X factor, he has a very big habit of doing this kind of thing” said IG Market Strategist Evan Lucas.

“The questions now being raised are: Is he in this for an arbitrage deal? Because it’s emerged that he bought the shares at around an average price of 3.95 Australian dollars [$3.69] per share. Under the current deal, he will make 5 cents per share, so he’ll make a tidy profit. The second possibility is that he is looking to force Woolworths to buy out his Country Road shares at a massive profit to what he paid.

“Thirdly, the left field thing will be whether or not he starts to block the deal, so talks to institutions such as Goldman Sachs, who are on the register, to get him up to 25 percent and actually start to make some sort of possible hostile takeover bid. I see that as very, very unlikely, but it’s still a possibility,” Lucas said.

David Jones shares closed Thursday unchanged at 3.90 Australian dollars, or $3.64.