Woolworths Holdings has finally closed the chapter on its ill-fated Australian purchase of David Jones, placing the retailer on a stronger footing.
The retailer informed its shareholders yesterday that it had successfully concluded the sale of its shareholding in David Jones to an Australian equity fund, Anchorage Capital Partners, after years of underperforming.
Woolworths bought David Jones in 2014 for about R21.4 billion but the investment soured, leaving it struggling with debt and poor performance.
Last year, the group announced it was looking to sell David Jones, despite its performance having improved.
Woolworths cut the David Jones store space to improve cost controls and trading densities, as well as renegotiate leases.
At the time, Woolworths chief executive Roy Bagattini said: “The strategic rationale at the time of the acquisition did not materialise to the extent originally envisaged…
“While David Jones has successfully executed on its turnaround, notwithstanding the Covid-19 disruptions, now is the right time for the business to operate under new ownership, while Woolworths refocuses on its core South African and Australian Country Road Group businesses.”
Woolworths said yesterday this would materially improve the return on capital of the group by further transforming its balance sheet through the removal of R22bn in liabilities, including R17bn in liabilities relating to the David Jones store portfolio.
“Importantly, this also enables the reallocation of capital and management focus towards the group’s core and higher yielding South African businesses and the Australian Country Road Group,” it said.
Woolworths said the legal completion of the transaction had been successfully concluded, in accordance with the terms of the transaction agreement.
“The proceeds of the transaction will be finalised based on completion accounts by the end of June, 2023.
“As previously communicated, management expects to realise the value in excess of the carrying value of the David Jones assets. A transitional services agreement will remain in place for a period of time to ensure an orderly separation of David Jones from the group,” Woolworths said.
The group said as part of the transaction, it would retain ownership of the flagship property asset in Bourke Street in Melbourne, which has been leased to David Jones on a long-term basis on market-related terms.
“In addition to the retention of the property asset, a total of R1.6 billion of capital has been returned to Woolworths by David Jones over the past 12 months,” it said.
Protea Capital Management senior analyst Richard Cheesman said the David Jones acquisition by Woolworths nine years ago was “a poor one”.
“Results rapidly went downhill after the transaction was consummated. Initially, management tried to turn the business around, but that did not work. After Woolworths’s leadership changed, the company pursued the only option left, which was to exit David Jones,” Cheesman said.
He said it hadn’t been a good story, but it was now over.
“Woolworths’s new management has made the most of it and has been able to extract some capital from David Jones. The continuing Woolworths group is on a much better footing, without David Jones being part of the mix.
“The Woolworths share price has gone up substantially since the exit from David Jones was first posited to be in the works. The group has been able to focus on its core business with the distraction of David Jones now removed,” he said.
Cheesman said that while shareholders had approved the acquisition of David Jones, there was scepticism from the time when the transaction was first announced.
Anchor Capital equity analyst Zinhle Mayekiso said: “We deem the sale of David Jones as being positive, and believe Woolworths will become a more simplified business.
“It will have a solid business in Country Road (Australia), an improving SA Fashion segment, whose underlying operational performance is starting to bear fruit on the implementation of strategic initiatives to improve the business,” she said.
Mayekiso said the food segment was relatively solid, but load shedding-related headwinds were likely to weigh on this segment in the near term.
BUSINESS REPORT