Johannesburg - Woolworths’s plan to buy Australia’s David Jones department stores for about R23 billion is starting to take shape, with the retailer setting out its funding strategy for one of the year’s biggest transactions.
In a circular sent out to shareholders on Friday, Woolworths detailed the funding plan for this acquisition, stating that about R10bn would come from its cash or term facilities, R4bn would be achieved through an Australian bridging facility and the balance of funds – amounting to R9.4bn – would come from equity bridge funding.
Subject to approval by shareholders, the retailer intends to undertake a rights offer to repay the equity bridging facility after the acquisition has been completed.
The detailed terms of the proposed rights offer, including the amount of financing to be raised, the offer price and the number of shares to be issued would be released in due course, it said .
Under the proposal, David Jones shareholders will receive A$4 (R38.75) cash a share.
Woolworths said after this proposed acquisition it would become the leading southern hemisphere department store operator. It will also be one of the largest firms on the JSE.
Woolworths said through this deal, the group would have enough scale to drive significant efficiencies and economies through enhanced global sourcing and the ability to leverage common seasonality and fashion trends.
The planned acquisition received a nod from Australia’s Foreign Investment Review Board last week, with the Woolworths board unanimously recommending that shareholders vote in favour of all the resolutions necessary to approve and implement the deal. The financial surveillance department of the Reserve Bank has also given its approval.
However, retail analysts have warned the retailer’s shareholders to exercise caution on the deal as there was a record of South African retailers who did not make the cut in Australia. Both Truworths and Pick n Pay had not been successful in the past.
Woolworths had previously said the combination of both the companies would comprise 1 151 stores across 16 countries and a tangible asset base of approximately R21.4bn, among other benefits.
“Woolworths has undertaken a detailed assessment of David Jones and believes that it can create significant value for its shareholders over time and through a number of key initiatives,” the group said.
These initiatives would include a profitable expansion of the David Jones private label product offering and introduction or expansion of Woolworths brands within David Jones stores. On David Jones private labels, Woolworths said the group’s private label contributed about 3.5 percent of the full-year sales last year. “There is an opportunity to increase this to at least 20 percent,” it said.
Other initiatives will include the introduction of an improved loyalty based on existing Woolworths knowledge and expertise. David Jones currently has a relationship with American Express through a combination of a store card and credit cards.
Woolworths shares gained 0.10 percent to close at R76.60 on the JSE on Friday.