Woolworths (Woolies) yesterday finally sold off its problematic David Jones Australian subsidiary, in a loss-making deal, but which will remove R17 billion in liabilities from its balance sheet.
Woolies announced plans yesterday to sell David Jones to an Australian private-equity firm, Anchorage Capital Partners, but its CEO Roy Bagattini in a call to journalists, did not disclose how much the subsidiary would be sold for.
Bloomberg reported the deal to be worth around A$130 million (about R1.5 billion).
Woolies bought David Jones for R21.5bn in 2014, making the buy its biggest acquisition through which it aimed to create one of the leading retailers in the Southern hemisphere.
Bagattini said the investment over the past eight years had been painful for Woolies and he was excited about the sale.
Investors for nearly a decade have lambasted Woolies’s management for its David Jones investment, which underperformed due to tweak economic sentiment in a tough Australian market that has been worsened by online players such as Amazon.
Bagattini said the firm would realise value from the sale of the business, but didn’t go into details, stating it was a complex transaction with several moving parts.
“The sale is absolutely positive for us,” he said.
“There will be no write-downs related to the sale. While David Jones was now cash-generative and profitable after extensive restructuring, it still wasn’t a fit for Woolworths,” said Bagatinni.
Bagattini said Australia remained an attractive market and that the Country Road business was becoming a more important part of the group.
He said the structural economics were somewhat fragile, and David Jones needed extensive amounts of investment going forward, not only in its store portfolio, but also in terms of its online business and its back-end system capabilities.
“That capital investment just doesn’t work for us. We can as management invest our time and effort and wherewithal in businesses that really make a difference to our group,” he said.
Woolies said it anticipated the transaction to be complete by the end of March, 2023 with the final proceeds to be determined based on completion accounts to be prepared in due course
As part of the transaction, it would materially improve the return on Woolies capital by further transforming its balance sheet through the removal of R17bn in liabilities relating to the David Jones store portfolio.
“Woolworths will retain ownership of the flagship property asset in Bourke Street, Melbourne, which will be leased to David Jones on a long-term basis on market-related terms,” it said.
A transitional services agreement would remain in place for some time to ensure an orderly separation of David Jones from the group.
Bagattini said: “This is a major milestone in the repositioning of Woolies for growth, while simultaneously improving return on capital for our shareholders. The strategic rationale at the time of the acquisition did not materialise to the extent originally envisaged.”
While David Jones has successfully executed its turnaround, notwithstanding the Covid-19 disruptions, now was the right time for the business to operate under new ownership, while Woolies refocused on its core South African and Australian Country Road Group businesses.
Anchorage Capital Partners said in a statement yesterday that it was a landmark deal and it was “proud to bring David Jones back into Australian ownership”.
It said David Jones, with its help would continue to execute its Vison 2025+ strategy, capitalising on its market position and brand value. It also plans to retain the current management under CEO Scott Fyfe.
“Under this team’s stewardship, David Jones is now profitable, cash-generative and self-funding and we are confident in David Jones’s next chapter as the retailer of the future with a seamless omnichannel experience,” it said.
In intra-day trade Woolies shares were up 1.75% at R68.13, having risen 35.27% in the past three years.
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