DEALTALK-Australia's Woolworths presents juicy targets for buyout firms

Tue Jun 30, 2015 6:30am GMT

By Byron Kaye

SYDNEY, June 30 (Reuters) - It's not hard to see why a private equity firm might buy Woolworths Ltd's up-market grocery chain for $15 million: the last time someone paid that amount for a non-core asset of Australia's largest supermarket chain, they grossed 17 times their initial outlay in an IPO less than a year later.

That deal was home electronics chain Dick Smith, and the Australian private equity firm which bought it from Woolworths, Anchorage Capital Partners, gave a textbook example of the value a turnaround specialist can extract from a small, underperforming unit of a diversified giant like Woolworths.

"Private equity can take advantage, in very general terms, of any large business that loses its focus on smaller business," said an Australian fund manager who bought into the A$345 million Dick Smith listing in 2013 and remains one of its biggest shareholders.

"The big money was made by the private equity and management exiting out of Woolworths and selling (Dick Smith) onto the market," the investor added, speaking on condition of anonymity because of the sensitivity of his firm's relationship with the electronics store.

It didn't take long for rumours to spread that private equity firms were circling Woolworths after the A$34 billion company flagged its first profit decline in nearly two decades and announced the surprise exit of its CEO in June.

Woolworths' shares have lost a fifth of their value since the first of two 2015 profit warnings in February, but they had their biggest bounce in five years on June 26, up 3.8 percent, after The Australian newspaper reported that U.S. private equity giant KKR & Co was preparing a bid for the company. .

On Tuesday, Fairfax Media reported that rather than offer the whole business in what would rank among Australia's top five corporate takeovers, Woolworths was testing interest in its 11-store gourmet food chain Thomas Dux.   Continued...  http://af.reuters.com/article/commoditiesNews/idAFL4N0ZF2Q520150630