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David Jones Australia shares soar after $2.15bn South African takeover

Woolworths might already be a household name in Australia, but shoppers are going to get used to another, quite different company of the same name after South Africa’s Woolworths Holdings lobbed a $2.15 billion takeover for David Jones.

It is a giant deal for Woolworths Holdings, which has a market capitalisation of $5.6 billion and annual revenues of $3.6 billion, compared with DJs’ revenue of $1.8 billion.

But the South African retail giant does not want for local knowledge. While South Africa accounts for almost 82 per cent of Woolworths Holding’s sales, Australia already represents 16.4 per cent of turnover.

And the company could have an ace in its pack in the form of chief executive Ian Moir.

Mr Moir is best known in the Australian market as the chief executive of Country Road, the upmarket clothing and homewares group in which Woolworths Holdings owns an 88 per cent stake.

Mr Moir was appointed the board of Country Road in October 1998, serving as chief operating officer before taking the top job in November 2000.

A decade later, after a relatively successful stint at Country Road, Mr Moir returned to the parent company, joining its board in January 2010 and taking the role as chief executive of Woolworths Holdings in November 2010.

Mr Moir will have an intimate knowledge of the Australian retail landscape and a good working knowledge of the David Jones business, because Country Road has long been a key concession within David Jones.

Woolworths Holdings is also well placed to understand David Jones’s market. In its home country it sells a similar niche of high-end clothes, homewares and high-quality groceries. Clothing and general merchandise are 31 per cent of Woolworths Holdings revenue, while food is 51 per cent. The remainder is accounted for by Country Road’s sales.

The businesses have similar reputations as reliable, slightly staid retailers who know their wealthy market inside out.

One key difference between the two is that Woolworths Holdings is riding on the back of the rapid growth in South Africa’s middle class – it has become an aspirational brand in a way that DJs is not.

Woolworths Holdings has 400 retail stores and franchises across South Africa, the Middle East and the wider African continent, including in Mozambique, Kenya, Uganda and Ghana.

The company has enjoyed solid growth in recent years, with sales up 21.3 per cent in 2012-13 and profit before tax up 25.1 per cent to $357 million.

Like most modern retailers, Woolworths also has a range of financial services products, including credit cards, insurance and personal loans. These products are offered through a partnership with Absa Bank.

Exactly how Woolworths Holdings plans to tweak the model of David Jones remains to be seen, but the new Woolies looks certain to make a big splash at the top end of Australia’s ultra-competitive retail market.
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