SYDNEY, Australia (Reuters) — Australian regulators said South Africa’s Woolworths should provide an independent valuation of Country Road Ltd due to concerns investor Solomon Lew may benefit unfairly from selling Woolworths his stake in the Australian apparel retailer.
The Australian Securities and Investments Commission (ASIC) raised its concern about Woolworths Holdings Ltd’s A$213 million ($201.5 million) offer to buy the billionaire investor’s 11.88 percent stake in Country Road in a Federal Court application on Wednesday.
Lew, who has refused to sell his stake in Woolworths’s Country Road since 1997, has amassed a holding of about 10 percent of Australian department store David Jones Ltd, raising speculation Woolworths offered to buy his Country Road stake at an inflated price to convince him to sell David Jones.
“Despite having 17 years to do so, Woolworths did not decide to make (the Country Road) takeover offer until Mr Lew acquired a material stake in David Jones,” the regulator said in its court submission, obtained by Reuters.
“The offering or giving of any (benefits not available to other David Jones shareholders) would be expressly prohibited in the analogous circumstances of a takeover bid.”
The ASIC court application is the latest in an increasingly complex and personal saga but was not expected to derail Woolworths’s $2 billion bid for David Jones, Australia’s second-largest retailer.
David Jones has already postponed by two weeks its shareholder vote on the deal to give it time to consider the impact of the potential blocking stake that Lew quickly amassed over just one month.
Calling for an independent valuation of Country Road shares, which in January were worth a third the A$17 a share that Woolworths is offering Lew, ASIC said it is “concerned that the consideration to be received by Mr Lew under the (Country Road) takeover offer offends the equality of opportunity principle enshrined in… the Corporations Act”.
Country Road shares are trading at almost 30 times its trailing 12-month earnings, compared with David Jones at 23 times and rival Myer Holdings Ltd at 12 times.
Woolworths should provide a report which includes an “expert valuation of the Country Road shares that are to be acquired…to ensure shareholders are provided with full, fair and meaningful information concerning the nature and magnitude of any Relevant Benefits receivable by Mr Lew.”
In a statement released late Wednesday, David Jones reiterated that an independent expert had maintained the takeover plan was fair and reasonable and in the best interests of shareholders.
“David Jones directors consider that this is a unique set of circumstances, where David Jones’ Scheme risks being adversely affected by a long-running stalemate between Mr Lew and (Woolworths) in which David Jones has no involvement and which has nothing to do with David Jones,” it said, adding that a vote would go ahead as scheduled on July 14.
A spokeswoman for Lew was not immediately available for comment.
The regulator said its next course of action will be influenced by any further disclosures given by Woolworths to other David Jones shareholders and an explanation of the relationship between Woolworths’s bids for Country Road and David Jones.
It did not give a timeline.