- Woolworths has signed an agreement to sell its David Jones business, which is the world’s oldest department store still operating under its original name.
- Proceeds from the sale have yet to be determined, but the company says it will derive value from it.
- Woolworths has struggled since it acquired David Jones in 2014, but says its turnaround efforts have paid off.
- For more stories, go to News24 Business Cover.
Retailer Woolworths has signed an agreement to sell its entire stake in David Jones, Australia’s oldest continuously operating department store chain, a move it says will improve its profitability profile and wipe out R17bn in related liabilities .
The sale to Australian private equity fund Anchorage Capital Partners is expected to be completed by the end of March 2023, Woolworths said in a statement, with final proceeds yet to be determined.
During a conference call on Monday, Chief Executive Officer Roy Bagattini said the company would derive value from the sale of the business, but declined to elaborate, saying it was a complex transaction with many moving parts, but “absolutely positive for us.” . .
“It wasn’t that long ago that people told me to just give it away, just walk in, close the door and return the keys,” he said.
There will be no write-downs related to the sale, Bagattini said, adding that Australia remains an attractive market. The group sees its Country Road business becoming a bigger part of the group.
While David Jones was now generating cash and profitable after an extensive restructuring, he still wasn’t a good fit with Woolworths, Bagatinni said.
“The structural economy is a fragile thing here, this business needs massive amounts of investment going forward, not just in its store portfolio, but also in terms of its online business and its back-end system capabilities.
“That capital just doesn’t work for us, that kind of investment.
“We can, as management, invest our time, effort and resources in businesses that really make a difference for our group.”
In 2014, Woolworths paid around R21.4bn to buy David Jones, who is over 180 but had struggled with debt and performance. He has recently been moving to reduce his store footprint to improve cost controls and store densities, as well as renegotiate leases.
Earlier this year, The Australian reported that the retailer was in talks with banks to sell David Jones, while Bloomberg reported on Friday that a deal worth R1.6bn was nearing completion.
Woolworths said it had concluded David Jones was “no longer aligned with the group’s strategic objectives”, and had previously indicated a sale was possible.
This sale comes despite recent improvement in business performance as it recovered from Covid-19 lockdown restrictions, with the firm recently saying sales at David Jones more than halved in the 20 weeks until November 13. In his year 2022, David Jones only contributed around 4% of the group’s R5 billion in pre-tax profit.
Woolworths said on Monday that, under the terms of the deal, it will retain ownership of the flagship property on Bourke Street, Melbourne, which will be leased to David Jones on a long-term basis on market-related terms.
A transition services agreement will be in place for a period of time to ensure an orderly separation of David Jones from the group.
“This is an important milestone in repositioning Woolworths for growth while improving the return on capital for our shareholders,” Bagattini said.
“The strategic rationale at the time of the acquisition did not materialize to the extent originally envisioned. While David Jones has successfully executed his turnaround, despite Covid-19 disruptions, now is the right time for the business to operate under new ownership, while Woolworths refocuses on its core South African and Australian Country Road Group businesses.”
