Veteran fund manager and Chief Investment Officer of Clime Asset Management, John Abernethy says a big private equity player such as KKR may have Woolworths Ltd in its sights because its current capitalisation is only slightly above what Wesfarmers paid for Coles back in 2007.
“The acquisition price was $22 billion then … and the retail market’s increased since then by between 25 and 30 per cent,” said Mr Abernethy.
He said until Friday’s $1 a share spike, Woolworths’ capitalisation had dropped back to around $32 billion despite its being about three times as profitable now as Coles was when it was taken over.
The price of Woolworths shares has slipped from more than $34 at the end of February to a recent low of $26.38 on Thursday June 25, before recovering to close at $27.39 on Friday.
“I think what’s happened is that we’ve got a market which is full of rumourtrage up and down. There are hedge funds and brokers who seem to know nothing about retail telling you that the end is nigh for Woolworths.’’
“I think what they’re doing is creating a market price where a few things may happen. Either Woolworths will be attractive to some foreign entity, whether it’s a big retailer, a strategic investor or a private equity group, or Woolies itself may well do a buyback because the shares are being offered at a fairly low level based on growth of company and the current market price.”
Recorded 26 June 2015. Originally published by Andrew Main from The Australian.