Illustration: John Spooner

Illustration: John Spooner

At last the big end of town can stop talking about why gaming billionaire James Packer and his best friend Nine Entertainment boss David Gyngell partook in a fisticuffs set-to on the pavement at Bondi Beach and instead turn its attention to what Solomon Lew is hatching at David Jones.

There are theories aplenty but my money's on the one that says Lew wants to sell his stake in Country Road, rather than make a bid for David Jones. It's greenmail with a twist. But more on this in a moment.

Last week Lew emerged with a 0.65 per stake in Australia's grande dame of top-end department stores just when it seemed South African retail group, Woolworths, was a shoo-in to buy it.

To further muddy the waters there now seems to be 10 per cent of the stock whose ownership is unclear.

If Lew has his foot on these shares - plus some more as people were suggesting yesterday - he could thwart the takeover offer which, incidentally, is pitched at a pretty generous price.

But it's worth sifting through the theories and their credibility.

First, some are suggesting he wants to buy David Jones himself. This is highly unlikely.

Lew is a retailer who never pays retail. He has had plenty of opportunities to acquire David Jones at lower prices and hasn't bitten the bullet. He has a history of never becoming involved in contested bids and prefers to buy assets from receivers.

Indeed it's a fair bet he has been waiting in vain for David Jones to go broke for years. Here's another thing about Lew - he is really patient.

History has also shown Lew to be a tyre-kicker or, in retail parlance, a window-shopper. The second theory is that he is engaged in a classic greenmail in which he gets control of enough shares to block the bid so Woolworths has to make a higher offer and he sells out whatever shares he has at a profit.

It is possible but then why choose David Jones. Greenmailing works better when a bid is pitched less generously and when the bidder has lots more money to spend.

Woolworths South Africa is not a giant company and had to work to convince its shareholders to spend $2.2 billion to bid for the Australian department store.

The far more likely Lew strategy involves apparel and homewares store Country Road. Woolworths and Lew have been at loggerheads over Country Road since 1997 when Lew took an 11.8 per cent stake.

Woolworths owns most of the remainder of Country Road but has refused to buy out Lew who has essentially been stuck and has had no leverage to force Woolworths' hand.

David Jones provides Lew with the opportunity to get some leverage to force Woolworths to buy out his Country Road stake.

Lew has been patiently sitting on this stake for 17 years getting little or nothing out of it. However in the past couple of months the Country Road share price has kicked back into life. Having sat at less than $4 for the past 10 years it shot up to $15 in February and March and now sits at $12, providing Lew with additional incentive to cash in.

But, for Lew's plan to work, he needs enough votes in David Jones to block a shareholder vote on the Woolworths takeover. To be safe this would be 10 to 15 per cent.

To date he has registered an interest in less than 1 per cent. He can control shares by taking positions in the derivatives market - and there is plenty of speculation that a parcel of shares held by Deutsche Bank, representing 6.7 per cent of David Jones, could fit into that category.

Lew is legendary for employing all sorts of tactics when it comes to shareholder votes.

Back in 2002 when the board of Coles Myer was proposing to vote him off as a director, Lew in effect paid institutional shareholders to borrow their shares for the period of the vote.

The board challenged the legality of the move with the Australian Companies and Securities Commission but lost. Lew also failed to save his position.

He garnered the support of two of his closest business allies, Gary Weiss and Sir Ron Brierley, who mounted a ferocious campaign for sacking the whole Coles Myer board with the exception of Lew.

In declaring his presence on the David Jones register last week, even with the 0.65 per cent stake - to which he may have added yesterday - Lew effectively lit the blowtorch that he is presumably either going to apply or threaten to apply to Woolworths.

If Woolworths tells Lew to get lost, it runs the risk of losing its bid for David Jones which will be a problem for all shareholders because the department store group's shares will fall.

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