Woolworths to buy out franchisees

Johannesburg - Retail group Woolworths Holdings [JSE:WHL] has decided to buy out its South African franchisees, the group said in statement on Thursday.

Outgoing Woolies CEO Simon Susman said the franchisees have made a valuable and significant contribution to the Woolworths business for many years.

"However, after an extensive strategic review of the franchise business, we have come to the conclusion that it is no longer in the best interests of Woolworths for us to operate a local, franchise business and we will stop franchise operations in South Africa."

He said Woolworths is offering to buy all local franchise stores at fair value.

"We are committed to an honourable and reasonable settlement with all local franchisees and are offering to buy stores at fair value. This means that despite fixed term franchise contracts, Woolworths will value the businesses as going concerns."

Susman summoned the franchisees to Cape Town for a meeting on Thursday morning.

The company said it has commenced discussions with the franchisees to agree on guiding principles for valuation. Once these principles are agreed, Woolworths final offers to buy will be in place until they expire on June 30 2011. The total value of this investment, if all the offers made to the franchisees were accepted, would not be material.

Upon the sale of any franchise business to Woolworths, Woolworths have committed to employing all franchise store managers and staff.

Woolworths noted that the key factors in reaching the decision to stop franchising were that it had become increasingly more complex and expensive to operate a separate franchise business model with its own systems and processes.

- Fin24.com