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Markets Live: Banks sink shares

That’s it for Markets Live today.

You can read a wrap-up of the action on the markets here.

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See you all again tomorrow morning from 9.


Australian shares moved lower despite some upbeat economic data out of the United States as a weaker commodity price outlook hurt local resource stocks, and the big four banks declined.

The benchmark S&P/ASX 200 Index and the All Ordinaries Index each dipped 0.4 per cent on Tuesday to 5432.8 points and 5415.1 points respectively, with many strategists noting that traders may be consolidating their portfolios before June 30.

“Investors have been engaging in some tax-loss selling in the lead up to the end of financial year next week. We expect that selling activity to continue over the week,” Morgans stockbroker Troy Fidler said.

Local shares fell in early trade after taking a weak lead from offshore. In the United States, Wall Street eased despite two closely watched private surveys indicating faster than expected growth in the housing and manufacturing sectors.

The US National Association of Realtors showed existing home sales grew twice as fast as expected in May, while a flash reading of the June US manufacturing purchasing manufacturers index shot to its highest in more than four years at 57.5 points.

Magellan Financial Group Portfolio Manager Dominico Giuliano said the US housing sector was growing even more strongly than the latest data indicates, and that this bodes well for the economy overall.

“After a substantial lag, there are very positive prospects for the US based on the improved figures, particularly as household building can soak up unskilled labour,” Mr Giuliano said.

Losses in the big four banks weighed heavily on the bourse. Commonwealth Bank of Australia lost 0.3 per cent to $81.58, while Westpac Banking Corporation shed 0.6 per cent to $34.15. ANZ Banking Group fell 1.1 per cent to $33.62, and National Australia Bank declined 0.8 per cent to $33.08.

Resources stocks were also mostly lower as the price outlook for key commodity exports weakened.

Read more.


And here are the best and worst for the day.

Ten enjoyed another surge on speculation that private equity might be interested in buying the network.

DJs was up after Woolworths said it would buy the rest of Country Road, which may have removed a stumbling block (Solomon Lew) to the South African retailer's bid for the department store.

Kathmandu sank 12.1 per cent on an earnings downgrade, while iron ore miners Arrium and Atlas Iron lost some of yesterday's buoyancy.

market close

Shares gave up some of yesterday's gains, as banks drove the market lower and miners fell despite a second consecutive day of iron ore price gains.

The ASX 200 fell 21 points, or 0.4 per cent, to 5432.8, while the All Ords dropped 18 points, or 0.3 per cent, to 5415.1.

Banks were by far the biggest drag, with ANZ falling 1.1 per cent, Westpac 0.6 per cent, NAB 0.8 per cent and CBA 0.3 per cent.

CSL dropped 1 per cent after a share buyback.

Miners had a reasonable start, but then lost ground in the morning, accelerating the broader falls. BHP finished the day flat, but miners more heavily exposed to iron ore fell: Rio finished the day 0.8 per cent down, and Fortescue 0.7 per cent.

Losses were spread across the market, the only exception being gold miners, which finished 0.7 per cent higher as a group.

Transurban continued its recent strong run, up 1.1 per cent.


Global energy major Shell has called for an overhaul of workplace practices to ensure living standards can be maintained and for Australia's global competitiveness not to be undermined.

In a speech to be given today at the Committee for Economic Development forum in Canberra, the head of Shell in Australia, Mr Andrew Smith, will say enterprise bargain agreements need to be reshaped in some sectors such as construction to allow them to last for the length of time it takes to complete a project.

As well, he highlighted the fact that work practices can mean cost blowouts of as much as 40 per cent on some projects.

Citing the example of a maintenance project involving five skilled workers which would take an estimated 500 hours to complete, this rose to 600 hours when adding in scheduled breaks and travel.

"But because of restrictive workplace practices, such as demarcation, it led to an actual labour spend of 700 hours", he is to say. 

"The result was we had 500 hours of work, but we paid for 700 ... Not only did it cost more to complete the task, but the equipment being maintained was unavailable for longer than expected and longer than necessary," Mr Smith will tell the conference. 

"When an oil industry worker is paid approximately 130 per cent of the American Gulf Coast benchmark, we need to refocus on maximizing effective hours at work.

Read more.

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RSVP, the online dating service owned by Fairfax Media, is poised to sign a merger agreement with rival Oasis Active, which is backed by Ten Network Holdings.

RSVP is wholly owned by Fairfax, while Ten controls about 40 per cent of Oasis, sharing the registry with other investors including co-founders David Heysen and Daniel Haigh, as well as former Star City, Engin and Solution 6 boss Neil Gamble.

It is believed the merged entity would be worth about $90 million, with Fairfax to retain a more than 50 per cent holding. Ten will control about 20 per cent with Mr Heysen and Mr Haigh also retaining stakes. It is not known whether Mr Gamble will emerge with a holding.

Read more.


Investment banks – already unpopular – have a new critic – none other than the Chinese government.

The People’s Daily, the official newspaper of China’s Communist Party, carried a commentary Monday criticizing those who have “talked down” the outlook for China’s real-estate market as having “ulterior motives”.

“The real-estate market has simply entered a normal correction phase,” the state-run newspaper said. “We should watch out for real motives of those who have voiced their bearish views loudly — disrupting the market, misleading the policy makers, and fulfilling their own selfish desires.”

The article then went on to list those “talkers”, which included Morgan Stanley, Société Générale, Nomura, and UBS.

“Their comments have exaggerated the anxiety in the market,” it said. “Concerns have spread further about ‘the possible bankruptcy of Chinese banks due to the collapse of property market, as well as local governments’ worsening fiscal conditions, since no one is buying their land’.”

As a result of their comments, “voices are getting louder” calling for the central government to ease existing curbs meant to cool prices and instead rescue China’s real-estate market, the newspaper said, adding that such a policy shift would simply benefit the developers and property speculators.

“For a lot of foreign investors who plan to fish the bottom of China’s property market, it is no surprise that they use the same trick they’ve been applying for years — being bearish in words, while going long in action,” the commentary said.

Read more at MarketWatch.


An abundance of iron ore at shipping ports and weak global growth are why some analysts are turning increasingly bearish on the bulk commodity, downgrading their price forecasts and lowering earnings expectations for the world's biggest miners.

Credit Suisse analysts said that the iron ore market is in a structural surplus out to 2016 and it has revised earlier forecasts for the second half of this year down to $US90 a tonne, averaging at $US89 a tonne in 2015 and $US87 a tonne in 2016.

The analysts also cut their earnings expectations for the country's biggest iron ore producers, despite acknowledging that the expansion plans of BHP Billiton, Rio Tinto and Fortescue Metals Group, along with Brazilian rival Vale, were likely to force the closures of many Chinese and some Canadian competitors.

It comes amid reports that BHP Billiton looks set to axe a further 3000 jobs from its iron ore division as it cuts costs in an attempt to stay internationally competitive.

But the investment bank is only just falling into line with the rival Citi, after its commodities team downwardly revised their forecasts for iron ore down to $US90 a tonne for 2015 and $US80 in 2016 in late February.

The bank also lowered related company earnings. Credit Suisse commodities research analyst Marcus Garvey expects the iron ore price to fall to $US85 a tonne in a year's time and after 2016, sufficient supply curtailments should help to gradually bring the market back to balance.

The commodities team at ANZ has a slightly different take on the iron ore price and sees it finding a bottom in the short term.

"We think current spot levels around $US90 a tonne will be the low point of the year, with stronger Chinese steel prices expected over the coming months propping iron ore back-up over $US100 a tonne," said ANZ commodity strategy Mark Pervan in a note to clients.

Atlas Iron has been cut to "underperform", from "outperform" and Fortescue Metals was cut to "neutral" from "outperform".

Read more.


German supermarket Aldi’s aggressive expansion in Australia will have a significant impact upon the viability of independent local grocers, including the struggling Metcash, analysts say.

Aldi has said that it will expand from its current 350 stores to 800 in the long term, but small stores are already being squeezed.

In Sydney’s north, for example, petitions have already started to prevent Aldi from opening a store on the site of a current independent grocer.

IGA Westleigh was notified by the centre management that its lease would not be renewed.

Supplied by wholesaler Metcash, IGA stores have unified branding and products across the country, but each store is run independently by a local owner.

A local resident suggested that at Westleigh Aldi put in a bid for the lease that the IGA could not compete with at the small suburban mall.

But some locals are protesting the loss of what they believe has become a central part of their community via initiatives for local sporting clubs and rewards programs, said Steve Lean, who lives in the area.

The residents are also concerned that the Aldi’s specific product range may mean some older regulars are unable to find the products they need, said Mr Lean.

“I don’t think it fits the suburb’s dynamic,” he said.

“It wouldn’t take you a minute to find 10 people in the street who say, ‘no I don’t want it’.”

In a sign of Aldi’s determination to expand, the Westleigh store will open up five minutes drive from the Thornleigh store currently under construction.

Aldi has not responded to a request for comment.

The signs don’t bode well for Woolworths and Coles, either, but they are even worse for Metcash and independent grocers around the country, argue JP Morgan and Credit Suisse.

Read more.

Aldi's rapid national expansion isn't making everyone happy.
Aldi's rapid national expansion isn't making everyone happy. Photo: Jason South

After the biggest gold slump in three decades left investors heartbroken, they’re following Taylor Swift’s advice and never, ever getting back together.

Janet Yellen, the one person able to make the lovers reconcile, did her best.

Prices surged the most since September the day after the Fed chair signalled last week that low interest rates are here to stay. Traders and analysts surveyed by Bloomberg News aren’t expecting the euphoria to last.

Prices will average $US1,250 an ounce next quarter, about 5 per cent less than now, according to the median of 15 estimates. The analysts were surveyed before and after the Fed’s June 18 outlook, and the forecast was unchanged. Even after a 28 per cent plunge in 2013, the bears are emboldened by this year’s records in equity markets, and gold assets in exchange-traded products have shrunk to the smallest since 2009.

“The surge in gold can’t sustain itself,” Donald Selkin, chief market strategist at National Securities in New York, said.

“It was a temporary spike because of a confluence of eventsIraq and Yellen. People will be looking at other areas for excitement. Holdings are down, so people are leaving gold in search of something better.”

Gold for immediate delivery rose 9.6 percent to $US1,317.52 an ounce in London this year, according to Bloomberg generic pricing. Bullion advanced on demand for haven assets as fighting erupted in Ukraine and Iraq.

“You’ve had a bit of safe-haven demand and a bit of inflation-hedge demand,” Georgette Boele, a precious-metals analyst at ABN Amro Group NV in Amsterdam, said June 20. “The view doesn’t change on gold, because this is temporary. The other drivers have not changed.”

Investors "broke up" with gold after the biggest slump in three decades - and they won't be getting back together, ...
Investors "broke up" with gold after the biggest slump in three decades - and they won't be getting back together, despite the recent ardour for the previous metal. 
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The Mongolian Government has slapped Rio Tinto’s $US6.2 billion ($6.6 billion) copper and gold mine Oyu Tolgoi with a bill of about $US130 million in unpaid taxes potentially creating a fresh delay to the expansion of the mine.

The government has launched a fresh audit on the mine operator Turquoise Hill Resources, a Rio subsidiary, claiming unpaid taxes, penalties and disallowed entitlements linked to the development of the massive project, understood to total about $US130 million.

But Turquoise Hill argues there is no basis for the audit claim, and said in a statement if there was no resolution by the end of June it would delay the mine’s next $US4.2 billion underground development phase.

The project has been plagued by delays. An open-cut copper and gold mine already exists at Oyu Tolgoi, but the development of a bigger and more lucrative underground mine has been stalled by a funding stand-off between Rio and the Mongolian government.

Rio controls the Oyu Tolgoi project through a 66 per cent stake held by its Turquoise Hill subsidiary. The Mongolian government owns the other 34 per cent.

Rio is aiming to sign a deal for the new $US4.2 billion underground mine before September 30.

Rio and Turquoise Hill said they could turn to international arbitration if they found the claim breached their investment agreement with the Mongolian government.

The Mongolian government has launched a fresh audit on the mine operator Turquoise Hill Resources, a Rio Tinto ...
The Mongolian government has launched a fresh audit on the mine operator Turquoise Hill Resources, a Rio Tinto subsidiary, claiming unpaid taxes, penalties and disallowed entitlements linked to the development of the massive project. Photo: Bloomberg 

After 17 years, Solomon Lew has his Country Road revenge, writes BusinessDay columnist Elizabeth Knight.

Billionaire rag trader Solomon Lew has cemented his reputation as a master tactician - and one capable of using whatever it takes to achieve a commercial outcome. 

He has just rung up $207 million on his personal cash register courtesy of his long time commercial nemesis, the South African retailing giant Woolworths and its chief executive Ian Moir

It’s a breathtaking victory for Lew who in one fell swoop gets the cash and the revenge.  Lew has 11.8 per cent of retailer Country Road and Woolworths has 88 per cent.

Lew has wanted Woolworths to buy him out at a hefty price for the past 20 years.

Over that time the South Africans had been telling Lew to get lost.  A few months ago Woolworths made a $2.2 billion takeover for David Jones - one which required shareholder approval. 

Lew immediately saw the leverage opportunity. He waded into the market and picked up 10 per cent of David Jones stock -  representing a clear signal to Woolworths that he could block the bid. 

On Tuesday Woolworths capitulated and made a takeover offer for Country Road thereby giving Lew his exit with the expectation that he will give Woolworths the green light to acquire all of David Jones. 

And just to cover off on all the bases Woolworths has made its offer for Country Road conditional on winning support for its bid for David Jones.    

These facts speak for themselves. But the spin speaks another language. 

Read more.

shares up

The rise and rise of the electric car is boosting the graphite industry and sparking incredible rises in the share prices of companies in Australia’s fledgling sector.

The last week has seen a rush of news from the industry. Queensland’s Lamboo Resources announced a supply deal with China Sciences Hengda Graphite to supply 50,000 tonnes of high-grade graphite flake per year, Archer Exploration bought a tenement in South Australia from Monax Mining for $300,000, and Triton Minerals announced positive results from drilling at Nicanda Hill in Mozambique.

All three companies have enjoyed incredible rises in the last 12 months. Lamboo’s shares are up 736.8 per cent, while Triton has surged 544.9 per cent.

Archer is up at a more measured 20 per cent, but fellow graphite miner, Syrah Resources, has rocketed from 17¢ in 2012 to $3.92, and is up 127.7 per cent in the last 12 months.

Traditionally used in refractories, steelmaking and ‘lead’ pencils, graphite is now riding the wave of the electric car. With more electric cars getting built, demand for graphite, a key material in the lithium-ion batteries that power them, is also surging.

Even American muscle icon Harley Davidson has announced that it is building an electric motorbike.
Lamboo chief executive officer Richard Trevillion said his company was hoping to move to full production next year after running a scoping study on the graphite from its McIntosh project in the Kimberley.

“The reason why flake graphite has got into the mindset of the market is because it’s the biggest bit of the lithium-ion battery,” he said.

Read more.


The share prices of many Australian consumer companies have been smashed over the past year under the weight of profit downgrades but with the stocks now cheaper, some analysts are wasting no time rebuilding their positions.

Consumer focused companies have faced several headwinds in the financial year to date due to softer consumer sentiment, expectations of a tough Federal Budget in May and unseasonably warm weather at the commencement of winter.

Companies that have seen profit downgrades and their share prices decline since January this year include Ten Network Holdings (down 12.28 per cent), The Reject Shop (down 49.83 per cent), Southern Cross Media Group (down 37.35 per cent), and STW Communications (down 10.7 per cent).

In a note to investors, Credit Suisse research analyst Samatha Carleton said good buying opportunities at the moment are companies with strong brands, growth prospects, high yields and merger and acquisitions prospects.

Credit Suisse said its top picks for the sector are Oroton Group (down 7.95 per cent this year to $4.05), Premier Investments (up 2.16 per cent to $8.53) and Speciality Fashion Group (down 7.03 per cent to 86¢).

“These companies have strong core brands, turnaround opportunities and high growth emerging brands,” said Ms Carleton.

“They all have strong management teams/boards with international retail experience. They have good exposure to Mothers Day as well as New Zealand, which may have offset some of the weakness following the Budget.”

Oroton Group is expected to double its earnings base over the next five years on the back of acquiring clothing brands such as Gap and Brooks Brothers.

Ms Carleton said the stock “looks extremely cheap on a three year price-earnings to earnings growth, (PEG) basis at 0.6 times.”

It is offering a 5 per cent dividend yield and there is a “an increased likelihood of a takeover given the current share price, strong core brand and absence of any restrictive clauses in the new agreements with Gap and Brooks Brothers that were present in the PRL licence.”

Among the investment bank’s top small cap media picks are APN News and Media (up 70.65 per cent to 78.5¢), Seven West Media and Prime Media Group (up 1.46 per cent to $1.04).

“These companies have strong or improving market share positions and are likely to deliver solid growth over the medium term.”

Oroton is among Credit Suisse’s top consumer stock picks. Photo: Nic Walker
Oroton is among Credit Suisseā€™s top consumer stock picks. Photo: Nic Walker 

Australia can weather a slump in mining investment as low interest rates and infrastructure spending spur other industries, while Japan could return as the nation’s biggest trading partner, economist John Edwards said.

Replacing 2 percent to 3 percent of gross domestic product with non-mining sources of growth over five to six years will be “onerous but not difficult,” the Reserve Bank of Australia board member wrote in a paper for the Lowy Institute titled “Beyond the Boom.” A lower Aussie would also help, he said.

The assessment is in part a rejoinder to debate on the economy that’s often based on a false premise of failure, Edwards said, with pessimism reflecting an historic reliance on drought-prone farm output.

Extension of Australia’s economic expansion, which began before the fall of the Soviet Union, will depend on individuals and businesses in areas like services discovering how to tap opportunities in Asia, he said.

“In half a century of increased trade with Japan and then Korea, Australia has been unable to substantially expand its exports beyond raw materials,” Edwards said. “The emergence of an Asian economic community based around China now offers Australia a second chance.”

Edwards rebuffs assessments that Australians squandered the latest mining boom, saying they saved much of the windfall from higher commodity prices and mining spending only added 3 percent to real gross domestic product anyway. The non-resident fellow at Lowy said the GDP gain had been “big, but as a change over eight years it is not that big.”

Read more at Bloomberg.


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Myer told Fairfax Media this morning it has been forced to terminate the employment of one of its prized executive recruits only days after trumpeting it had poached him from global fast fashion giant Zara, after it was revealed this morning that Andrew Flanagan had never worked for the fashion retailer and it had never heard of him.

A spokeswoman for Zara contacted Fairfax Media this morning and confirmed they had never heard of Mr Flanagan.It is believed Myer is conducting an investigation into how Mr Flanagan managed to succeed an exhaustive and thorough background check by a reputable executive hiring company and how he managed to succeed in getting the job as Myer’s new group general manager of strategy and business development, reporting to Myer chief financial officer Mark Ashby.

Mr Flanagan came with excellent credentials and contacts within the global fashion industry.The executive recruitment company is also investigating Mr Flanagan and his extensive CV which claimed he had also worked for British retail giant Tesco and US supermarket powerhouse Walmart.

Last week Myer also announced it had hired executives from Burberry and Woolworths has part of a renewal of its senior executive ranks and gathering possible contenders to one day replace Mr Brookes at the top.

adele ferguson

Retired sugar cane farmer Myles Tenni is praying a powerful Senate inquiry will release a report on Wednesday that rights the wrongs he believes were done to him - and thousands of others - by Commonwealth Bank.

Tenni, who is 79, says after he sold his sugar cane farm in the late 1990s he invested part of it with Rollo Sherriff, who at that time was a star financial planner at Meridien Wealth, a former authorised representative of Commonwealth Bank's Financial Wisdom arm.

Like many of Sherriff's customers, the planner recommended Tenni gear up and take out margin loans with the bank.

By 2004 Tenni's retirement savings were decimated and his son Darryl was looking for answers. They hired accounting group William Buck to help investigate whether they had a case for ''negligent advice'' from Financial Wisdom.

The report, obtained by this columnist, concluded that if Tenni had not made further investments from borrowings using a margin loan, his initial investment would have gone up at June 30, 2004, instead of falling $333,941.

What the father and son didn't know was that the Financial Planning Association had suspended Sherriff's accreditation for five months after it found he had given ''inappropriate advice'' to some customers.

CBA backed Sherriff and by March 2005 his suspension had been lifted and, for its star planner, it was business as usual.

Read more.


Biotech firm Bionomics has partnered with American pharmaceutical company Merck to fund research into Alzheimer’s disease and other central nervous system conditions.

Investors have responded by bidding the stock up almost 15 per cent to 50 cents each.

Merck has agreed to pay an upfront sum of $US20 million ($21.2 million), and Bionomics could receive up to $US506 million ($537 million) if it hits certain research and development targets.

Merck, one of the world’s biggest pharmaceutical companies, will manage worldwide commercialisation of products that are developed as part of the program, including exclusive product licensing.

Bionomics stands to benefit from an ongoing basis through royalties on worldwide net product sales.

Last year, Bionomics and Merck signed a deal to research and develop treatments for chronic pain associated with neuropathic pain.

Bionomics’ BNC 375 chemical compound is at the heart of the deal. It targets a respecter in the brain and is aimed at improving memory and learning problems experienced by people with Alzheimer’s disease and other cognitive illnesses.

It has been shown at this stage to work on animals.

Earlier this year, Bionomics’ shares dropped almost 40 per cent after research results for its BNC 105 compound, an anti-cancer agent, was found to have a limited effects.


In a blow to the government’s top economic policy department, Treasury Secretary Martin Parkinson will lay off 30 staff to meet cost-cutting targets.

Dr Parkinson, who will leave Treasury in December after being dismissed by the Abbott government, has been forced to implement involuntary redundancies to meet a target of slashing the department’s workforce.

One in three full-time positions at Treasury will be eliminated by 2016-17, from the peak of just over 1000 in 2011. Most of the reduction is being achieved through natural attrition and voluntary redundancies.

Dr Parkinson held an internal briefing on Friday to break the news about involuntary redundancies, telling colleagues the department was facing a financial loss that was “not acceptable” to Treasury.

“I know that this is a difficult time for everyone,” Dr Parkinson told staff in an email, obtained by The Australian Financial Review.

“I want to reassure you that the board and I have given a lot of consideration to this decision. The Treasury is undergoing a period of significant change. I am choosing to manage the issue of staffing reductions directly because we need to take action now. Even though the numbers involved will be small (less than 5 per cent of staff), I know this will not be easy. However, we need to address this issue immediately to position the Treasury to meet the challenges ahead.”

In addition to the staff cuts for more junior officials, Dr Parkinson flagged that the department was also struggling to meet its objective of cutting 10 per cent of senior executive services officers (SES) this year. They also face possible involuntary redundancies.

Mass scale involuntary redundancies are extremely rare in the public service, where the old adage is that you have a “job for life”.

Other agencies, including the Australian Tax Office, are also being forced to cut staff, after blowing out over the past decade.

The Abbott government’s May budget projected that 16,500 federal public servant positions will be cut over the next three years.

Read more ($).


In case you missed it, the big news is Woolworths' cash bid for Country Road...

South African retail giant Woolworths is planning an all-cash takeover over for Country Road, in a bid that values the fashion chain at $1.76 billion and shatters a 17-year deadlock.

The offer is the latest move in Woolworths' $2.2 billion play for department store David Jones.

Rag-trader billionaire Solomon Lew, who owns an 11.8 per cent of Country Road and has been busily buying shares in David Jones. Last week it emerged that he was the company's biggest shareholder, having amassed 53.1 million shares.

It is believed Mr Lew has been threatening to block the David Jones acquisition unless Woolworths acquires his Country Road stake, which is now worth about $170 million.

Woolworths already holds 88 per cent of Country Road. Therefore the total cash consideration for the acquisition is about $213 million. 179 minority shareholders own the rest of the company.

The Country Road offer price of $17 a share is a 21.4 per cent premium to the company's closing price on Monday.

Country Road shares have soared from $4.83 in January to a record $15.40 in March - only two weeks before Woolworths unveiled its $2.2 billion offer for David Jones. The shares are now around $14.00.

Woolworths made a $2.00 a share takeover offer for Country Road in 1997, but Mr Lew's Australian Retail Investments accrued a blocking take, preventing Woolworths from taking full control.

However, if Woolworths buys Mr Lew's stake it may trigger collateral benefits issues and jeopardise the David Jones scheme of arrangement.

Read more.

Power play: Market sources believe Solomon Lew wants Woolworths to buy him out of Country Road at a significant premium ...
Power play: Market sources believe Solomon Lew wants Woolworths to buy him out of Country Road at a significant premium and is threatening to block the David Jones takeover to get his way. Photo: Glenn Hunt
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