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Woolworths geared to go shopping Down Under
The SA chain is embarking on its first major international expansion, writes MARCIA KLEIN
Woolworths, in its first major international expansion, is offering Country Road shareholders A$2 a share, valuing the company at A$137-million. This is well above the market price at the time of the announcement of a proposed takeover and at a premium to net asset value, but there has been resistance to the move. Woolworths also said this week it had made the bid unconditional. Originally, it was conditional upon a minimal holding of 50.1%. The offer closes on Thursday. Woolworths chief executive Syd Muller said on Friday: "I think the bid has gone pretty well . . . we have got the support of over 500 smaller shareholders and the support continues to come in." He expected the larger shareholders to reply to the offer at the last moment, but said there were indications that some would vote yes. Even if Woolworths didn't get its targeted 50.1%, it would continue to work towards getting control. "Already we are the dominant shareholder. If we don't get control by the Thursday cut-off date, it is not the end of the world. We are working towards control," said Muller. Woolworths effectively has management control. Muller is on Country Road's board, and further appointments will follow. Although there has been much news of resistance to the bid, Muller said in a statement no major shareholder had publicly stated it would not accept the offer. "We believe our A$2 cash offer is now even more attractive given the recent volatility in global equity markets and the fall in the Australian stock market since the offer was announced," he said. He said it was particularly pleasing that directors of the company had accepted the offer, a clear indication that they regarded it as both fair and reasonable. Directors have recommended shareholders accept the bid. Muller said that the offer had been in the market for three months and there was no sign of another offer. Australia's The Age newspaper reported on Thursday that Australian Retail Investments, a major shareholder with about 11%, was against the offer and had claimed the A$2 a share was too low. ARI said in a statement: "Aside from the financial issues, we believe some shareholders would have concerns with the issue of foreign ownership of an Australian brand with enormous export potential and the potential implications for jobs." Independent directors, including founders and the chairman, accepted the offer on behalf of their collective 8.9% stake. Woolworths was listed on October 20 after holding company Wooltru distributed 43.2% of its interest in Woolworths to its shareholders. In May, Woolworths bought a 14.9% interest in Country Road and, at the time of listing, it had already increased its stake to 19.9%. Country Road, which is listed on the Australian Stock Exchange, is an upmarket men's and women's fashion, accessories and homeware chain. Like Woolworths, it is a single-brand retailer. Other similarities are the focus on quality, innovative design and value for money. In its prospectus, Woolworths said the acquisition gave it "the opportunity of accessing international markets and brands". It said that the investment formed an integral part of its international expansion plans, "but it is not expected that this investment will make a material contribution to Woolworths' earnings in the next few years". It said at the time it was investigating the feasibility of marketing Country Road products through the development of an SA retail chain. Country Road has some problems of its own, and Muller has indicated it would take about three to four years to rejuvenate it. He told The Age it was a good brand, but said there were a number of fundamental operational problems which needed to be addressed. According to the Sydney Morning Herald, the chain notched up big losses in 1992/93 in its overseas operations, and in the following years lost focus and went downmarket. Last year it also had problems with stock control following the opening of a new warehouse in Melbourne. Woolworths had similar experiences in 1992. Its profits slumped after it decided to move away from its high quality at reasonable prices formula into high fashion, and wrong-footed on the styles and fashion in vogue. It took years to recover, but Woolworths is now a top performer. In the year to June earnings were 32.5c a share, up from 28.4c in the previous year. Turnover was R4.2-billion. Apart from the Australian expansion, Woolworths has franchised stores elsewhere in Africa and the Middle East.
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