Published On: Thu, Jun 19th, 2014

Solomon Lew Invests $200 Million For Blocking Holding In David Jones Retail Group

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Australian fashion retailer David Jones, which is listed on the Australian Stock Exchange, today filed a notice with the Australian Securities regulator postponing a scheduled special meeting of shareholders, which was previously set to take place in Sydney, on June 30th, 2014, in order to approve the company’s negotiated sale to South African retailer Woolworth Holding by way of a scheme of arrangement.

David Jones specifically states in its announcement that what it terms the “Scheme Meeting” had been postponed following lodgement of a substantial shareholder notice by Australian Retail Investments, confirming that entities associated with Solomon Lew  hold 9.89% of David Jones’ shares.

This is the latest fall out from the announcement yesterday by veteran Australian entrepreneur Lew Solomon that he had newly acquired his nearly 10% position in the shares of David Jones, in a potentially blocking manoeuvre for their takeover plans. One can infer that David Jones has postponed the meeting in order for management to solidify support for the deal amongst its shareholder constituencies.

It was just the other day that Frank Lowy’s Westfield Retail Trust also postponed a vote at a similar such special shareholders meeting, when it was becoming clear there too support for his restructuring plans was lacking. While the details are very different, the dynamics and fluidity of Australian shareholder democracy, exemplified by both companies shareholders, can only be described as “robust.”

Lew’s filing with the Australian Securities regulator indicated his private company Australian Retail Investments had acquired just over 53 million shares of David Jones. Lew also runs a public retailing group Premier Investments, which is debt free and sitting on fairly large amounts of cash, as a potential acquisition war chest.

The filing reported he picked up about half of his holding just on Monday, paying A$3.90 per share at a cost of about US$98 million (A$104.5 million), and his total stake is currently worth over US$192 million (A$206 million).

Meanwhile major South African retailer Woolworth had earlier held a special meeting of its own shareholders late Tuesday, which overwhelmingly approved the offer Woolworth is currently making to acquire 100% of David Jones at a price of A$4 per share, for a total bid value of more than US$2 billion A$2.2 billion.

The Woolworth offer is contingent on a scheme of of arrangement to be approved by David Jones public shareholders. Conditions of the Woolworth offer, which are consonant with roll-up requirements of Australian law, are that shareholders representing at least 50% of David Jones’ shares actually turn up in person at that meeting and that the Woolworth offer is then approved by at least 75% of the votes present.

For some weeks it has been widely reported that Solomon Lew might indeed make precisely such a move, perhaps even just in spite in order to block the South African company Woolworth Holdings from taking control of David Jones, as they have a long history of mutual corporate antagonism. Or, alternatively, at the very least it could put himself in a position to apply leverage for his facilitating their planned transaction as a “greenmailer, ” or as he would undoubtedly prefer to be termed, just as an honest arbitrageur, or “arb” as everyone calls them these days.

Presently, with this announcement Lew now also seems to even have become David Jones largest shareholder ahead even of institutional shareholders, or of other “arbs” who simply like to play the game for a profit. The Australian Financial Review has reported, for example, that Goldman Sachs Group owns 9.17 per cent, BlackRock, owns 6.4 per cent and Deutsche Bank, holds 6.69 per cent of the shares.

Clearly if they all voted together with Lew, they could immediately shoot down the transaction at a shareholders meeting. It is even said that a substantial chunk of Deutsche Bank’s reported holding, representing about another 5.5% of David Jones’ shares, has been sold to Lew as well using derivatives contracts, which are not currently reportable under current disclosure regulations.

Under Australian law, if Solomon Lew should eventually end up with over 19.9% of David Jones shares he would then be obliged to make his own takeover offer for the whole company, though apparently few commentators think that is his objective.

Indeed Solomon Lew has also tussled with Woolworth’s before, including successfully blocking for many years its attempt to take full control of another Australian publicly listed fashion retailer, Country Road. Lew has been stuck with his blocking 11 per cent stake in that fashion chain for nearly twenty years, probably to the detriment of both groups – but neither would bend enough to make a deal in the mean time.

Now, by again intervening and this time by interfering with the Woolworth offer for David Jones, maybe Lew is hoping to force a good bargain on his own terms, to get rid of his position in Country Road on valuable terms, in exchange for giving up playing hardball on David Jones.

On the other hand David Jones itself has a lot of underlying real estate as well, partly underpinning the Woolworth bid to begin with, so one never knows. Now we will all have to wait until July 14th, when the David Jones shareholder meeting is currently now re-scheduled to take place, at which time we should find out – though David Jones also pointed out today that further postponements could also take place.

Interestingly, the penultimate paragraph of David Jones filing today says the following:

The David Jones Board unanimously recommends that in the absence of a superior proposal, David Jones shareholders vote in favour of the WHL Proposal. As at the date of this announcement no superior proposal has emerged, accordingly the David Jones Directors intend to vote all the David Jones Shares held or controlled by them in favour of the WHL Proposal.

In other words, there may be a direct message for Lew Solomon there – if you do intend to make a superior proposal yourself by all means do so.

 

 

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