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Jul 3, 2014
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Australian regulator concerned about Woolworths deals

Jul 3, 2014

SYDNEY, Australia - Australia's corporate regulator expressed concerns on Wednesday about two takeovers being pursued by South Africa's Woolworths Holdings Ltd's, arguing the deals might benefit billionaire retail investor Solomon Lew unfairly.

Woolworths, which made a $2 billion bid for department store operator David Jones Ltd in April, followed that with a bid to buy Lew's 11.88 percent stake in high end clothing retailer Country Road Ltd for A$213 million ($201.5 million).

Lew, who has refused to sell his stake in Woolworths's Country Road since 1997, has amassed a holding of about 10 percent of David Jones, raising speculation that Woolworths offered to buy his Country Road stake at an inflated price to convince him to sell David Jones. 

Country Road shares are trading at almost 30 times its trailing 12-month earnings, compared with David Jones at 23 times and rival Myer Holdings Ltd at 12 times. 

The Australian Securities and Investment Commission said an expert valuation of Country Road shares should be included in supplementary disclosure notices for the David Jones deal to ensure shareholders could make an informed decision. 

"Despite having 17 years to do so, Woolworths did not decide to make (the Country Road) takeover offer until Mr Lew acquired a material stake in David Jones," the regulator said in its court submission, obtained by Reuters.

"The offering or giving of any (benefits not available to other David Jones shareholders) would be expressly prohibited in the analogous circumstances of a takeover bid." 

The ASIC application was rejected by the court and was not expected to derail Woolworths's $2 billion bid for David Jones, Australia's second-largest retailer.

Woolworths said the Country Road deal was done for commercial reasons, and formed part of its long-standing desire to buy out minorities in the upscale retailer. 

"There's no agreement with Solomon Lew with regards to the offer for Country Road. It's being for good commercial reasons and Country Road would get their own expert independent opinion on the valuation," said Woolworths's spokesman Nic Bennett. 

Rising shares 

In a statement released late on Wednesday, David Jones repeated that an independent expert had maintained the takeover plan was fair and reasonable and in the best interests of shareholders. 

"David Jones directors consider that this is a unique set of circumstances, where David Jones' Scheme risks being adversely affected by a long-running stalemate between Mr Lew and (Woolworths) in which David Jones has no involvement and which has nothing to do with David Jones," it said, adding that a vote would go ahead as scheduled on July 14. 

A spokeswoman for Lew was not available for comment. 

The regulator said its next course of action will be influenced by any further disclosures given by Woolworths to other David Jones shareholders and an explanation of the relationship between Woolworths's bids for Country Road and David Jones.

1 US dollar = 1.0571 Australian dollars

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