Contract may hinder Woolworths bid
A potential stumbling block to a takeover of Woolworths emerged today after the fine print of a key contract revealed a change of control clause.
Private equity group Apax, which had a takeover proposal worth £789m (€1.1bn) rejected by the retailer last week, is studying details of the clause within a contract to supply entertainment products to supermarket group Tesco.
That is expected to mean Apax or any other potential bidders would find it harder to value the company’s wholesale subsidiary, Entertainment UK (EUK).
The division, which recorded annual sales of more than £1bn (€1.5bn) during the company’s last financial year, is seen as a significant part of the group. In August, it announced the contract to become Tesco’s major supplier of CDs, videos and computer games for a period to the end of February 2007.
At the time of the deal, no mention was made of the change of control clause.
A spokesman for Woolworths said: “As part of the contract, there are a series of clauses relating to change of control. These clauses vary depending on circumstances.”
Last month, Apax indicated it was willing to offer in the range of 50p to 55p a share for Woolworths, but the retailer’s board dismissed that as too low and lacking certainty.
Woolworths shares have stayed high – at 48.75p – despite the setback for Apax as investors speculate on whether it will revise its proposals or draw new bidders into the fray. Private equity rival Cinven is among those believed to be interested.
The chain, which is chaired by former Railtrack boss Gerald Corbett, is seen as vulnerable to a takeover after it endured a tough Christmas season, describing its festive performance as “disappointing” after sales of toys and blockbuster DVDs failed to meet hopes.
Woolies, which has 806 stores, has been losing out to rivals such as Tesco as supermarkets gain a larger market share of non-food items.
