Woolies’ Big W options

Woolworths

Speculation is mounting that Woolworths may have drafted in Goldman Sachs to weigh options for its Big W division as a separate business unit, prompting questions about whether a demerger could be on the cards.

Goldmans advised on the split of the $6 billion resources company South32 from mining giant BHP Billiton earlier this year, and should it have in fact been appointed, some say it makes the chances of Big W being transformed into a separately listed business on the Australian Securities Exchange a greater possibility.

Goldmans would not comment on whether it was in fact working for the supermarket’s discount department store, but two sources in the market said they believed the US-based investment bank was on the ticket.

Swiss bank UBS was known to be previously close to Woolworths, but some say this is no longer the case and the latter’s relationship these days is more with Goldmans, and also Citi, which is believed to be working closely with the Woolworths business.

Morgan Stanley had been mentioned as being on the fringes, pitching ideas to Woolworths.

Suggestions Luminis Partners, which is advising rival supermarket business Metcash, was in fact engaged to advise Big W had proved to be wide of the mark, despite the close relationship between Woolworths chairman Gordon Cairns with the firm’s partners.

It comes with talk in the market last week that Sally Macdonald, the former boss of listed luxury handbag retailer Oroton, was being targeted for the job of running Big W, which is in search of a new chief executive following the departure of Alistair McGeorge in August.

At the Woolworths annual general meeting in Sydney last month, Cairns indicated that a sale of Big W was unlikely to be on the agenda. Apparently, the Woolworths board is understood to be cautious of a sale to private equity in fear of repeating the situation with its previously owned Dick Smith, where buyer Anchorage Capital offloaded the business via a $500m-plus float after buying the company from the supermarket chain for $94m.

A demerger would avoid any embarrassment about selling the business too cheaply to a buyout firm, while removing the business from the Woolworths balance sheet.

One theory is that Goldmans would likely be examining the merits of three options for Woolworths, including a sale to private equity, a spin-off on the Australian Securities Exchange or retaining the business.

Analysts believe a spin-off could work, depending on how much debt was put into the business.

Woolworths was recently sounded out by Blackstone and Carlyle as a takeover target in its entirety but are said to be no longer interested.

It comes at a time US-based buyout firms are in search of major deals internationally.

Businesses are selling for more than 13 times their earnings before interest, tax, depreciation and amortisation in their home market and with a need to put billions of dollars’ worth of uninvested funds to work at a time of low exchange rates, sources say that it seems reasonable that Woolworths could be a target for a $30bn-plus bid.