Will The South African Conglomerate Tame The Aussie Retail Giant?

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After years of lagging performance, Woolworths (WHLJ.J) has decided to end the declining success of its Australian David Jones unit by selling it off to private equity fund Anchorage Capital Partners.

In a bid to make Woolworths a significant power in the southern hemisphere, ex-Chief Executive Ian Moir invested heavily into buying David Jones, an Australian food and fashion retailer. This resulted in a substantial financial premium for Woolworths but was ultimately worth it due to their newfound presence across Australia.

Despite Woolworths’ efforts to bring the 185-year-old department chain into the 21st century, a surplus of physical stores and contractual obligations were obstacles they needed help to overcome quickly enough. As such, their online business suffered and resulted in continued write-downs on its value.

Woolworths attempted to replicate its profitable South African food venture in David Jones but needed help to achieve the same success.

Roy Bagattini, the successor of Moir, wished to enhance the performance of David Jones by restructuring its balance sheet by selling properties, shutting down unproductive stores and decreasing costs while fortifying its online business.

On Monday, Bagattini released a statement stressing, “At the time of acquisition, the anticipated advantages did not develop as originally thought.”

“Despite having expertly pivoted in the face of COVID-19, now is an optimal moment for David Jones to be under fresh ownership.”

Bagattini mentioned to the press that details regarding the pricing of this deal are private, yet emphasized that their team expects to experience gains higher than what was initially invested in David Jones’ assets.

Investors had foreseen this news, and the stocks of Woolworths showed little enthusiasm in response; however, by 0834 GMT, they rose 1.54%.

Last week, reliable sources revealed that David Jones was to be sold for a whopping 130 million Australian dollars ($87.22 million), with The Financial Review providing an estimated price of 100 million Australian dollars.

With the Australian government imposing restrictions on retail stores, and other companies faltering in their investments, this proposed move by Woolworths is likely to be seen as a risk-free maneuver; one that could restore investor confidence in the conglomerate.

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