Supermarket giant Woolworths Group has defended its plan to buy listed marketplace MyDeal.com.au after a frosty market reception, saying it would complement its existing businesses, provide greater choice for customers, and create value for all shareholders.
The battle of the marketplaces is heating up after Woolworths offered to buy an 80 per cent stake in MyDeal, lifting the online marketplace’s value – including debt – to $243 million.
Woolworths’ move is an attempt to beef up its online offer. Last September, it launched its marketplace platform Everyday Market, which offers a range of goods from baby items to electronics.
This leaves three heavyweights – US giant Amazon, Wesfarmers with Catch.com and Woolworths – to battle it out for online domination.
Woolworths chief executive Brad Banducci said in a statement that MyDeal would enhance the group’s online capabilities in furniture, homewares and other bulky goods, and discount retailer Big W’s general merchandise.
A Woolworths spokesman said while the Australian food business was central to Woolworths’ success, it was possible to buy adjacent businesses that “complement our existing portfolio of businesses and brands”.
“[This will] provide greater choice and convenience for our customers, and in return value to our shareholders,” he said.
Barrenjoey head of consumer research Tom Kierath questioned the rationale of the retailer’s plan to buy the fifth-largest marketplace operating in Australia, which is loss making.
“[Woolworths] has struggled to generate returns in non-food businesses [Masters, Dick Smith, Big W], so we question why they would allocate capital like this,” he said in a note to clients.
The analyst said Woolworths’ “outstanding” food business had had recent missteps. “This acquisition looks to be a tacit acknowledgement that Woolworths’ marketplace isn’t gaining traction.”
MST Marquee analyst Craig Woolford said the fight for having the best range, price and service online will be costly.
When Mr Banducci took over as chief executive in 2016, he cut the mismanaged expansion into home improvement with Masters hardware, and sold online business EziBuy, writing it off to the tune of $300 million.
At the time, Mr Banducci said the synergies Woolworths expected when it bought EziBuy were not realised – and in fact had been a drag on Big W.
Then there was the embarrassing “fire sale” of electronics chain Dick Smith to private equity investors in September 2012.
Another market watcher said any capital spent on MyDeal would be better returned to shareholders. “This raises questions around who is driving the agenda. It feels like a distraction, with consultants and bankers floating ideas, but this doesn’t make sense,” he said.
“Maybe Woolworths is looking at Wesfarmers, maybe there is FOMO [fear of missing out]. Seems to be the same thing with API.”
In December, Woolworths lobbed a last-minute $850 million bid for Priceline Pharmacy owner Australian Pharmaceutical Industries (API), only to drop it in January, leaving Wesfarmers to take control.
The MyDeal offer price of $1.05 cash a share via scheme of arrangement represents a significant premium to ASX-listed MyDeal’s closing price on Thursday of 65¢ – ahead of the transaction being announced.
MyDeal shares jumped 55.8 per cent to $1 each on Friday – the same price the online business listed at in October 2020. It made a strong debut, but it has since spiralled downwards, in line with other online retailers such as Kogan.com, Adore Beauty and Temple & Webster.
Woolworths shares rose 21¢ to $35.39 on Friday after sliding 5.6 per cent on Thursday in a broad retail sell-off.
MyDeal founder and chief executive Sean Senvirtne and key management shareholders will retain a 20 per cent interest and remain in the business, which hosts about 1900 vendors offering more than 6 million products in categories such as furniture, homewares and garden. It has more than 1 million active customers.
Mr Senvirtne, who controls a 47.3 per cent stake, plans to vote in favour of the transaction, which got the board’s unanimous recommendation in the absence of a better offer.
He has also granted Woolworths a call option over 19.9 per cent of his MyDeal shares. Other MyDeal shareholders Silver Globe and Aavasan (the Gandel family) – which control 28.6 per cent combined – said they planned to back the deal.
RBC Capital Markets is acting as financial adviser and Maddocks is acting as legal adviser to MyDeal, while Woolworths is being advised by Jarden.
Extracted from AFR
