Source: Australian Stock Exchange.
David Jones is expecting overwhelming support from minority shareholders on Monday to consider South African Woolworths' $2.2 billion offer, but Australia's oldest department store will not know until a court hearing later this week whether the takeover will proceed.
David Jones has also yet to hear from ragtrader Solomon Lew (right), who emerged with a 9.9 per cent stake last month and has refused to disclose whether he intends to support or oppose the offer.
The Australian Securities and Investments Commission has also threatened to intervene and, depending on the outcome of the vote, may withhold a letter of consent, raise matters of concern or oppose the scheme at a court hearing on Thursday.
ASIC believes Woolworths' $213 million mop-up offer for 88 per cent-owned Country Road represents a multimillion-dollar ''inducement'' or collateral benefit to Mr Lew, breaching ''equality of opportunity'' principles enshrined in Corporations Law.
Woolworths offered to buy Mr Lew's 11.8 per cent stake in Country Road for a generous $17 a share, conditional on the David Jones scheme proceeding.
Analysis of voting intentions over the past few weeks suggests that about 95 per cent of investors are in favour of Woolworths' $4-a-share offer and plan to vote in favour of the scheme of arrangement.
The scheme requires support from 50 per cent of shareholders and 75 per cent of shares voted. Given David Jones' low shareholder turn-out in the past, Mr Lew would be in a position to block the vote with as little as 12 per cent of the shares or with the support of other investors.
However, David Jones shareholders are confident the scheme will proceed, whether or not Mr Lew votes his shares and regardless of ASIC concerns.
''I wouldn't bet my house on it, but I'd say it's highly likely,'' said BT Investment Management fund manager Sondal Bensan. ''It's not really in anyone's interests for it to not go ahead.
''We think it's fair and our feeling on the offer hasn't changed,'' he said, despite the so-called collateral benefit to Mr Lew.
''It would be difficult for the court to reject it because it hinges on whether or not David Jones shareholders are not getting the benefit that Lew is getting for the Country Road contingent offer,'' Mr Bensan said.
''For that to occur you'd need to have a view the Country Road offer was over and above the fair value of Country Road [and] on the surface that doesn't look to be the case.''
ASIC tried to force David Jones to secure an independent valuation of the ''collateral benefit'' being offered to Mr Lew, but the court rejected its request, citing time constraints.
Country Road has appointed Lonergan Edwards to prepare an independent expert report on Woolworths' offer, but the report and a Target's Statement will not be sent out until next week.
Country Road released a trading update last week in an apparent
attempt to show that Woolworths' $17-a-share offer was not excessively generous and reflected the clothing retailer's strong earnings growth.
Based on Country Road's profit guidance, Woolworths' offer values Country Road at a multiple of 26.3 times earnings per share (EPS) and represents an enterprise value to earnings before interest, tax, depreciation and amortisation (EV/EBITDA) multiple of 14.5. Woolworths' $4-a-share offer for David Jones values it at 25 times forecast 2014 EPS and 11.9 times EV/EBITDA.
''On EV to sales, the offer is not that far from Kathmandu's value,'' Mr Bensan said.
David Jones has acknowledged that Mr Lew may be receiving a benefit not available to other shareholders and has asked Mr Lew not to vote his 53 million shares. If he does, David Jones plans to tag his shares to determine the influence on the result.
The court will take into account the outcome of the vote and recent developments including Woolworths' offer for Country Road, Country Road's trading update and supplementary information sent to David Jones shareholders before deciding whether the deal should proceed.