s in amassing a substantial stake in David Jones in on and off market deals that could potentially thwart the Woolworths bid. In an attempt to shore up its bid, Woolworths has launched a parallel premium offer takeover bid for the remaining minority shareholdings in Country Road, aimed at giving Lew a substantial profit on his long held stake in the hope he abandons a spoiling strategy in the David Jones takeover. Woolworths may or may not know Lew’s objectives, but some retail analysts argue that a profitable exit from Country Road could be Lew’s motive for accumulating the David Jones stock. Flawed analysis The analysis is almost certainly flawed. A billionaire, Lew doesn’t need the money and is not about revenge. Lew wants a prize, but the real question is, what prize does he want? Inside Retail PREMIUM does not believe Lew has built a shareholding of at least 10 per cent in David Jones since Woolworths announced its takeover in April without a prize in mind, and there are five possibilities. The first possibility is a counter bid by Lew for Country Road, although the share price has escalated rapidly in the past six months and Woolworths has effectively set the bar at $17. Lew attempts to scuttle the Woolworths bid for David Jones to give himself the opportunity of developing his own takeover bid, albeit Lew would not have the synergies available that underpin the Woolworths premium offer of $4 a share. Lew sells his 11.8 per cent shareholding in Country Road at what would appear to be a once in a lifetime opportunity to accept the modest profit Woolworths offers for his accumulated stake in David Jones and launches a bid for control of Myer. Lew again accepts Woolworths generosity on his two shareholdings and sizes up another takeover target that would likely be outside the fashion industry, but could potentially include the privately held Sussan Group or publicly listed Specialty Fashion Group. The fifth possibility is, of course, that Lew simply takes profits from his long held stake in Country Road and the David Jones foray and lunches with his bankers. There is speculation in the market that Lew might try to parlay his stakes in the two Australian retailers into supplier contracts, an objective that would seem disproportionate to the scale of his engagement with Woolworths. Others have suggested he may acquire David Jones’ property portfolio, which would not really fit with the strategies he has used to amass his personal fortune. Ramifications David Jones directors were forced to delay the June 30 meeting to vote on the takeover bid to July 14 after learning that Lew had secured almost 10 per cent of issued scrip and was apparently negotiating to purchase or borrow further shares ahead of the meeting. With allies, Lew is understood to have effective control of least 15 per cent of David Jones shares, but remains tight lipped about his intentions – a silence that has prompted concerns about the rules governing takeovers, the rights of other shareholders, disclosure obligations, and the maintenance of an informed market. Woolworths decision to make an all cash offer to acquire all of the ordinary shares it does not already own in Country Road at $17 a share is an attempt to force Lew to reveal his intentions and, hopefully, dissuade him from proceeding with any strategy to scuttle the David Jones deal. Woolworths already has a relevant interest in 87.88 per cent of the issued shares in Country Road, acquiring control and trumping a Lew bid for the fashion business in 1996. Lew has remained on the share register ever since, a constant critic of Woolworths’ management, business strategies, and trading performance. Woolworths’ offer to mop up the remaining minority shareholdings in Country Road would cost it $213 million, with Lew pocketing close to $207 million if he accepts. For Lew to acquire Country Road, which now includes Trenery, Witchery, and Mimco, more than $1 billion, indeed more than $1.4 billion if the Woolworths premium bid of $17 is used as a benchmark. The $17 price per share is four times what the thinly traded Country Road scrip was valued at in January and capitalises the business at twice its 2013 revenues, or an absurd double digit multiple on earnings. The offer of $17 per share is a premium of 21.4 per cent to the closing price of Country Road shares on June 23, and has been justified by Woolworths on the basis that it provides a “substantial part of the synergy benefits” associated with the David Jones takeover offer. What next? Ian Moir, Woolworths CEO, said achieving full ownership of Country Road is a logical next step in line with the South African retailer’s longstanding desire to delist the business. For Lew to buy Country Road, Woolworths would need to accept less than the $17 a share price it has set and would test its resolve and maths in respect of the David Jones takeover. At the lofty levels that Country Road’s share price has reached underpinned by the Woolworths majority stake, a rival takeover bid by Lew for David Jones makes more sense, but a bid for Myer or one of the other major fashion retail groups looks an even better option. Lew has expressed an enthusiasm for acquisitions for more than five years and has been sitting on a war chest in Premier Retail (Just Group) of more than $300 million in cash. More significantly, he has assembled a management team under former David Jones CEO, Mark McInnes, with solid experience in department stores, a management team that appears top heavy for Premier Retail’s current portfolio. Lew’s retail management team has prompted speculation in the past two years about a takeover bid for either David Jones or Myer. David Jones looks an expensive proposition for Lew at this juncture, but his accumulated stake in the department store group could well provide another prize – the Myer group he has long coveted. Myer is struggling, and there are serious questions about its leadership and management now, let alone when Bernie Brookes exits. Shareholders, especially the institutions, would be very receptive if Solomon Lew knocked on Myer’s door, and the price would be more realistic than either Country Road or David Jones. There is talk of Lew taking revenge on Woolworths with his David Jones play, but if unfinished business is part of his current foray, Lew has much more interest in putting to rights what he considers a hurtful and humiliating chapter of his life when he was forced off the Coles Myer board he once chaired. The intrigue surrounding Lew’s share buying in David Jones is almost certain to continue right up to July 14, with Lew unlikely to play his cards early. If nothing else, 18 years sitting on the Country Road share register with a minority interest shows his patience and resolve. This article first appeared in Inside Retail PREMIUM issue 2004.