UPDATE 3-Australian billionaire's gambit pays off in Woolworths Country Road buyout

Tue Jun 24, 2014 7:35am EDT

* Lew ends 17-year showdown with healthy profit

* Woolworths gets David Jones and Country Road

* Lew has built fortune on wily retail investments (Adds comments from Woolworths investors)

By Byron Kaye

SYDNEY, June 24 (Reuters) - Australian billionaire Solomon Lew effectively ended a 17-year standoff with South Africa's Woolworths Holdings Ltd on Tuesday with a deal that will have the department store firm buy him out of two investments at a massive profit.

With a A$200 million ($188 million) gamble, Lew positioned himself to block the South African firm's A$2.2 billion takeover of Australian rival David Jones Ltd by amassing almost 10 percent of the target's stock in little more than two weeks.

The David Jones gambit gave Lew a huge bargaining chip to negotiate an exit from another Australian investment, clothes retailer Country Road Ltd, in which he held an 11.88 percent stake alongside controlling shareholder Woolworths.

Woolworths on Tuesday offered to buy Lew out of Country Road at a massive premium of A$17 a share, handing the Melbourne-based businessman a A$188 million profit and removing his implied threat to the David Jones takeover.

Lew bought the Country Road shares for about A$2.00 each in 1997 in a successful effort to frustrate Woolworths' attempted takeover of that company. And he bought his David Jones shares for an average A$3.90 each, compared with Woolworths's A$4.00 offer price.

If he accepts Woolworths's A$213 million offer for his Country Road stake, worth just A$59 million in January, and sells into its David Jones offer, Lew will not just pocket a tidy profit but prove once more he is one of Australia's wiliest and most patient investors.

"He had them where he wanted them and if they wanted David Jones they had to pay up," said Lonsec senior client adviser Michael Heffernan.

"EXCESSIVE"

David Jones shares, which have traded below the Woolworths offer price as Lew's holding hovered over the deal, rose 4.09 percent to A$3.95, while Country Road jumped 21 percent to A$16.99 as investors bet on Lew taking up the offer.

One South African institutional investor in Woolworths, who declined to named, said the Cape Town-based company was already paying too much for David Jones, whose sales have been going backward for three years and which operates in a slow and competitive market.

"It's excessive," the investor said. "I cannot understand why (Woolworths Chief Executive Officer) Ian Moir is so desperate to get this David Jones deal through."

The Country Road deal, which Woolworths says is conditional on sealing the David Jones transaction, would add an extra 2 billion rand ($188 million) to the total costs of its stated ambition to become one of the top southern hemisphere retailers.

Lew, who has had public spats with Woolworths over the running and strategic direction of Country Road, is regarded by many as a thorn in the side of Woolworths after blocking the firm from buying all of and delisting Country Road for 17 years.

"Buying out minorities in Country Road is what Woolworths wanted anyway and it makes sense to pay a 21 percent premium on a 2 billion rand deal (rather) than risk jeopardising a 20 billion rand deal," said Jean Pierre Verster, a fund manager at Johannesburg-based investor 36One Asset Management.

SOL HAS FORM

The offer, if Lew accepts it, marks another remarkable chapter in a career defined by shrewd, audacious investments.

Most notably, he bought into David Jones rival Myer in the 1980s at what was reported to be a bargain price. He then gradually built his stake so that he had about 6 percent of retail conglomerate Coles Myer when it sold supermarket chain Coles Group to Wesfarmers for A$20 billion in 2007.

Newly minted Lew then established retail-focused Premier Investments, which quickly paid A$821 million for Just Group Ltd, owner of several well-known clothing brands such as Just Jeans, Jay Jays, Portmans, Dotti and Smiggle.

That company is now worth an estimated three times that amount, according to Australian media.

POKER FACES

Neither Woolworths nor Lew would comment on the Woolworths offer for the Country Road shares. Woolworths said in a statement to the Australian Securities Exchange only that it hoped to reap "synergy benefits" from owning all of Country Road and David Jones.

"In light of the proposed acquisition of David Jones, this is a common sense and timely opportunity to seek to reach full ownership of Country Road," Moir said in the statement. "If successful, the offer will allow (Woolworths) to delist Country Road, allowing (Woolworths) to simplify its group structure and fully integrate the businesses."

A spokesman for Lew could not be reached for comment and Lew's listed retail investing business, Premier Investments Ltd , made no comment on its David Jones share raid other than a May 26 regulatory filing to say it had bought the shares. ($1 = 1.0639 Australian Dollars) ($1 = 10.6164 South African Rand) (Additional reporting by Tiisetso Motsoeneng in Johannesburg; Editing by Stephen Coates and Mark Potter)