The offer DJs shareholders couldn't refuse

By Stephen Bartholomeusz

Without saying a word in public, or having any meaningful contact with Woolworths in private — he and his advisers would have known that there couldn’t be any contact or understanding that involved the way he would vote his David Jones shares or they would inflame the collateral benefits issue — he positioned himself as a threat to the success of the bid for David Jones, which needed the approval of 75 per cent of the shares voted at the meeting.

ASIC is concerned that Lew may have received a 'collateral benefit' in the form of an uncommercially big profit on his 11. 8 per cent shareholding in the Woolworths-controlled Country Road by threatening to use his 9. 9 per cent shareholding in David Jones to block the scheme.

We’ll probably never know if he would have carried through with that threat and left himself with a minority shareholding in David Jones, had Woolworths not made its bid for Country Road (which would only proceed if its bid for David Jones was approved) and, in effect, created a $200 million-plus inducement for him to allow the bid for David Jones to succeed.

It is backing itself to be able to justify the high price for David Jones through the execution of its strategies while the benefits of 100 per cent ownership of Country Road would be amplified by its ownership of David Jones.

The bid for David Jones gave him the chance to create a very profitable exit from the otherwise stranded Country Road shareholding, and therefore it isn’t inevitable that he will redeploy the capital he has extricated any time soon.

The $4 a share that Woolworths offered for David Jones is a big price and one that would appear to rely, from Woolworths’ perspective, on its ability to create value by extracting the $130 million a year of synergies it believes it can achieve by bringing its business model and sourcing next to David Jones.

Read more here: Business Spectator


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