Woolworths planned to raise R10 billion in a rights offer to help repay funding for its acquisition of Australia’s David Jones, it said on Friday.
The upscale retailer of food and clothing finalised in July its A$2.2bn (R22bn) purchase of Australia’s second-largest apparel retailer to create a global player focused on the southern hemisphere.
Woolworths said it planned to release details of the rights offer tomorrow, with the offer to close on September 26.
The deal was partly financed by short-term funding from banks, including Citigroup, JPMorgan Chase and Standard Bank, which needed to be repaid, Woolworths said in a regulatory filing.
At the height of closing the deal, Woolworths chief executive Ian Moir was hospitalised for back surgery. “I had put it off and put it off but I couldn’t put it off any longer,” Moir said of the operation.
“It wasn’t great timing but it didn’t have any effect. The anaesthesia wears off after a couple of days. I wasn’t making deals while I was under the influence of drugs.”
Moir’s resilience paid off when the takeover of Australia’s oldest department store – identified as a target about 18 months ago – was completed on August 1. The transaction creates a southern-hemisphere retail giant with combined revenue of R58bn from more than 1 150 stores throughout Africa and Australia that can compete with Inditex’s Zara chain and Hennes & Mauritz, which are based in Europe.
Woolworths planned to sell R10bn of shares to repay a loan taken to help fund the deal, the retailer said in a statement on Friday. The rights offer would be underwritten by units of Citigroup, JPMorgan Chase and Standard Bank, which helped fund the deal in the first place. The full terms will be released tomorrow.
Moir’s health problems were not the biggest obstacle he had to overcome: Australian billionaire Solomon Lew, who spent 17 years blocking Woolworths from taking full control of clothing retailer Country Road through an 11.9 percent holding, amassed a stake in David Jones that was potentially large enough to prevent the deal. Lew did not exercise that option after Woolworths agreed to pay him about A$209 million for his Country Road stake, or A$17 a share.
“I have got to take my hat off to him,” said Moir, who has never spoken to Lew, a former board member of the Reserve Bank of Australia, despite several efforts to set up a meeting during the decade Moir spent as chief executive of Country Road. “He managed the process well. He got a good deal out of it and he walked away with a handsome sum of money.”
Moir denied overpaying Lew, saying an independent evaluator found Country Road’s shares were worth A$16 each, and that excludes A$30m in savings Woolworths will realise from the acquisition.
“We certainly got a share that was worth more than A$17 to us,” he said. “It was win-win. We wanted him out. It wasn’t us doing a side deal, or seeking to get him out of the way so that the David Jones deal could go through.”
Moir, who was born in Scotland and is also an Australian national, took over as Woolworths chief executive from current chairman Simon Susman in November 2010. Since then, the retailer’s share price has gained about 188 percent, compared with a 65 percent rise in the FTSE/JSE Africa general retailers index.
Woolworths said last week that sales gained 13 percent to R39.9bn in the 52 weeks to June 29 as it won customers and opened more outlets. Diluted earnings a share rose 9.5 percent to R3.63. The Cape Town-based company is not related to Woolworths Limited, the supermarket chain that is Australia’s biggest retailer.
Moir plans to cut prices at David Jones through more own-label sales, while introducing a loyalty-card programme and boosting online revenue. He expects to save at least R1.3bn annually in five years.
“Woolworths has been delivering on what it promised to achieve in Australia through Country Road after the Witchery and Mimco acquisitions, and this gives confidence it will also do so with David Jones,” BPI Capital Africa analyst Luis Colaco said. “The synergies it said it planned to achieve have not changed, even after buying the rest of Country Road, which is also a good sign.”
Moir, who is based in Cape Town, said he planned to spend about half his time in Australia over the next 18 months to bed down the acquisition, which would probably be his last for the foreseeable future. “I think my boss has taken my cheque book away,” he said. “We have taken real risk here, but for real return and it’s a managed risk that we all understand.”
The shares rose 0.51 percent to close at R79.46 on Friday. – Bloomberg and Reuters