Woolies to buy Australian retailer David Jones

Cape Town  - Woolworths [JSE:WHL] has offered R21.4bn to acquire the entire issued share capital of Australian retailer David Jones for AUS$4.00 per share.

The offer represents a 25.4% premium to the closing David Jones share price on April 8 2014.

The David Jones board of directors has unanimously recommended that its shareholders vote in favour of the transaction.

The acquisition is still subject to an independent expert concluding that the transaction is fair and reasonable and in the best interests of David Jones' shareholders.

The combination of Woolworths and David Jones will create a retailer with revenue of over R51bn from 1 151 stores across 16 countries.

Approximately 43% of sales would be generated in Australasia.

The combined business

David Jones is one of Australia’s oldest department stores and occupies a similar customer positioning to Woolworths in South Africa, namely at the premium end of the apparel business.

It operates 38 department stores across Australia and owns its flagship stores in Sydney and Melbourne.

Woolworths has operated in Australia for over 15 years through its subsidiary, Country Road, which operates the Country Road, Trenery, Witchery and Mimco brands.

"The combined group will have increased scale that will drive significant efficiencies and economies through enhanced global sourcing and the ability to leverage shared seasonality and trends, improving value for the customer and overall profitability," a statement issued about the deal, said.

"Each business will be well equipped to compete with global retailers in their respective markets."

Woolworths will become one of the largest companies listed on the Johannesburg Stock Exchange, retaining its headquarters in Cape Town.

International revenue

The acquisition of David Jones will increase Woolworths' international revenue by around 50%, reported Adriaan Kruger.

In the last financial year to June 2013, Woolworths earned R6.4bn from its Country Road retail group - some 18% of Woolworths' total revenue of R35.2bn.

It is noteworthy that revenue and profit from Country Road (also based in Australia) increased much faster than in SA.
 
The latest figures show that revenue from Country Road increased by 33% per year and profit before tax by 51%.

Sales and profit in local stores grew by a much more modest 14% per year.

According to management, the inclusion of David Jones will boost earnings before interest and tax by R1.4bn per year within five years.

More than half of Woolworths' earnings will then be earned offshore.

Key initiatives

Woolworths has identified a number of key initiatives which it believes will deliver synergies of at least R1.4bn per year in earnings before interest and tax per annum within five years.

These initiatives include the profitable expansion of the David Jones private label product offering, better product pricing through increased volumes and group-wide lower cost sourcing, the expansion of the Woolworths brands within David Jones stores, an improved loyalty programme and the rolling out of village format.

As part of this, Woolworths will develop its local South African supply chain and boosting Southern African exports.

Woolworth’s CEO Ian Moir said the transaction provides the scale and opportunity to deliver significant benefits to shareholders and customers in South Africa and Australia.