Billionaire's stake shakes Woolworths buyout of David Jones

SYDNEY Wed Jun 18, 2014 3:18am EDT

Shoppers leave a Woolworths store at a shopping centre in Lenasia, south of Johannesburg, August 28, 2013. REUTERS/Siphiwe Sibeko

Shoppers leave a Woolworths store at a shopping centre in Lenasia, south of Johannesburg, August 28, 2013.

Credit: Reuters/Siphiwe Sibeko

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SYDNEY (Reuters) - Australian billionaire Solomon Lew revealed on Wednesday he has bought a 9.89 percent stake in David Jones, throwing South African firm Woolworths Holdings' $2 billion buyout of the upmarket department store operator into doubt.

Lew's private investment company Australian Retail Investments said in a statement to the Australian Securities Exchange it had more than 53.1 million David Jones shares, having bought about half the stake two days earlier.

Up to another 10 percent of shares in David Jones, Australia's second-largest retailer by sales, are believed to be on loan via derivative swaps and may be also controlled by Lew, market participants said.

The quickly amassed holding - Lew had just 0.65 percent of the retail giant according to a May 30 securities exchange filing - gives the veteran investor the potential to block a deal recommended by David Jones's board and overwhelmingly approved by Woolworths shareholders on Tuesday.

That could force Woolworths either to lift its offer or buy out Lew's stake in its other Australian investment, clothes retailer Country Road Ltd. Lew has held his Country Road stake, currently 11.88 percent, for 17 years, preventing Woolworths from taking full ownership.

"If he is in a position to block the transaction, he's under no obligation to tell," said Dean Paatsch, director of proxy advisory firm Ownership Matters which warned institutional investors to recall any David Jones shares on loan if they wanted the sale to go ahead.

"It's most likely he's playing a gigantic game of poker," he said.

Spokespeople for David Jones and Lew declined comment.

David Jones shares were 0.39 percent higher at A$3.89 at 0551 GMT, lower than Woolworths's A$4.00 per share offer. The stock has only briefly traded at or above Woolworths's offer price since it was made on April 9, suggesting investors are unsure it will proceed.

"We have no ability to predict the outcome of this or Solomon Lew's intentions," said Simon Mawhinney, senior portfolio manager at Allan Gray Equity A, one of David Jones's top investors with 4.99 percent of its shares.

"There's perhaps a little bit more doubt than there was a week or so ago."

David Jones shareholders are due to vote on the offer, which would create one of the leading retailers in the southern hemisphere, on June 30. Woolworths shareholders approved the offer at a meeting in Cape Town on June 17.

The deal requires the approval of a 50 percent majority of shareholders with at least 75 percent of the stock. But only votes cast at the meeting are counted and David Jones historically had shareholder turnout as low as 50 percent, Ownership Matters's Paatsch said.

That means Lew could block the buyout with as little as 12.5 percent of the vote, Paatsch added.

($1 = 1.0639 Australian Dollars)

(Editing by Stephen Coates)

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