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Woolworths’ David Jones Takeover to Present Competition for Inditex

Woolworths Holdings Ltd, the South Africa-based retail group, which operates Woolworths Limited stores and Country Road Limited, took one step closer to taking over Australian department store chain David Jones in a $2 billion dollar deal.

The move would make Woolworths a major retail force in the southern hemisphere, and the company intends to compete with Inditex’s Zara and Hennes & Mauritz (H&M).

David Jones shareholders voted on the deal in a meeting Monday and nearly 90 percent were in favor of the takeover, far more than the 75 percent required for the deal to proceed.

Australian billionaire Solomon Lew, who owns a 9.9% stake in David Jones–large enough to threaten the takeover deal–abstained from voting.

Gordon Cairns, David Jones chairman said, “The result of the shareholder vote unequivocally demonstrates the overwhelming support amongst our shareholders for Woolworths’ $4 a share cash offer,” the Sydney Morning Herald reported.

David Jones shares closed at $3.98 Australian dollars Tuesday, just below the Woolworths offer. Woolworths shares were up 1.96% to 83 rand on the Johannesburg stock exchange, and the stock has increased 12 percent since the group announced the David Jones offer in April, according to Bloomberg.

“The vote brings us another step closer to creating a leading Southern Hemisphere retail business with the necessary scale and common seasonality to deliver substantial benefits to our company and our customers,” Woolworths chief executive Ian Moir said.

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The combined group would have had roughly $6 billion in revenue during its 2013 fiscal year, according to data compiled by Bloomberg, giving it more buying power than Abercrombie & Fitch or British Debenhams.

Wayne McCurrie, a fund manager at Momentum Asset Management, told Bloomberg, “Woolworths is paying top price for David Jones.” He added, “You can buy a good company, but if you have paid too much it will put a strain on your shareholders.”

Woolworths also offered to buy Lew’s 11.8% stake in Country Road last month, provided he didn’t thwart the David Jones takeover. The retail group offered Lew $17 Australian dollars a share to add to its own 87.88 percent holding, but Lew has yet to respond and the offer remains on the table.

Some David Jones shareholders in attendance at the meeting voiced concerns that the board failed to do more to negotiate a higher offer from Woolworths based on David Jones’ iconic status and its property holdings, which are valued at $612 million.

Shareholder Noel Levy said, “The shares are worth a lot more compared to the Country Road offer,” according to the Morning Herald. “I still think we should be getting closer to $8 rather than $4 a share.”

Woolworths and David Jones will know whether the acquisition will be approved by the federal court following a hearing Thursday, and both have declined to comment before then.