Woolworths Holdings share price down, to acquire David Jones Ltd in a 2-billion-dollar deal, expands reach beyond home market

Woolworths Holdings Ltd reached an agreement to acquire the Australian retailer David Jones Ltd in a deal estimated to 2.15 billion Australian dollars (2 billion dollars). Woolworths Holdings has been recently trying to expand its reach on the Australian market, which is an attractive destination not only for the company, but also for some of its global competitors such as Hennes & Mauritz AB and Inditex SA.

As reported by Bloomberg, the Chief Executive Officer of Woolworths Holdings Ltd – Mr. Ian Moir commented the deal in an interview in Sydney: “We’re buying this business to build a bigger southern hemisphere brand. We’ve got real scale in the southern hemisphere, we’ve got the same seasonality, so we’ve got a real competitive advantage over northern hemisphere entrants.”

The Chief Executive Officer of David Jones – Mr. George Cairns said in a statement, cited by the Wall Street Journal: “This is a compelling proposal that represents a significant premium to not only our intrinsic value but also to broker valuations and to recent share prices.”

David Jones was reported to have urged its shareholders to accept the bid of Woolworths Holdings Ltd, which amounts to about 4 Australian dollars per share. In October 2013 a previous bid estimated to 3.19 Australian dollars a share was made by Myer Holdings Ltd. The latter made a statement, revealing that it has cancelled the offer for David Jones.

The statement was cited by the Financial Times: “While we believe in the strategic merits of our proposal and the potential value accretion for both sets of shareholders, we have always maintained a disciplined approach to valuation, and as a consequence we will advise David Jones today of the withdrawal of our proposed merger of equals.”

The deal between Woolworths Holdings Ltd and David Jones is considered as one of the largest outward bound purchases for South Africa. It emphasizes on the fact that South African companies are striving to expand their reach overseas, while their home market has faced slowing growth.

According to Financial Times, shares of Woolworths Holdings Ltd fell 7.47% to 6.798 ZAX on the Johannesburg Stock Exchange today, while companys one-year return rate was 1.51%. The same media reported that the 12 analysts offering 12-month price targets for Woolworths Holdings Ltd have a median target of 7,650, with a high estimate of 10,300 and a low estimate of 6,000. The median estimate represents a 4.12% increase from the last price of 7,347.

Shares of David Jones Ltd gained 22.57% to close at 3.91 AUD on Australian Stock Exchange today. Companys one-year return rate was 35.76%.