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.

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

Country Road's third largest shareholder says minority investors are "laughing all the way to the bank" as a 17-year standoff between South African retailer Woolworths and Australian retail magnate Solomon Lew reaches boiling point.

Veteran stockbroker Nestor Hinzack bought into Country Road in 1997, when Woolworths' $2 a share takeover offer for the clothing and accessories chain was blocked by Solomon Lew's Australian Retail Investments.

Mr Lew's private company built a 12 per cent-plus blocking stake, preventing Woolworths from taking full control.

Solomon Lew's ARI owns 12.3 million Country Road shares.

Solomon Lew's ARI owns 12.3 million Country Road shares. Photo: Arsineh Houspian

Now Mr Lew has turned up the heat on Woolworths by buying shares in David Jones, threatening the South African retailer's $2.2 billion takeover offer for the department store chain.

Market sources believe Mr 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.

"As small shareholders we're laughing all the way to the bank - it's terrific," said Mr Hinzack, who owns about 40,000 shares.

"The more tension that goes into it the better."

After trading between $2 and $4 for more than ten years, Country Road's thinly traded stock inexplicably jumped from $3.54 to $9.50 on February 6 this year.

On March 26 – two weeks before Woolworths unveiled its $4 a share offer for David Jones – Country Road shares jumped again, from $10 to almost $15 a share.

Mr Lew is said to be asking as much as $16 a share for his 11.8 per cent stake, although one source close to the ragtrader said that valuation seemed "extremely exaggerated."

"You have to value the company on its profitability," the source said.

Mr Hinzack said Mr Lew was said to have asked for $5 a share several years ago.

"They're probably kicking themselves for not taking it," he said.

Mr Hinzack believes Country Road is well placed to capitalise on Woolworths' takeover of David Jones and says the shares could be worth at least $15, valuing the company at around $1.5 billion.

Since Country Road's $172 million takeover of Witchery and Mimco in 2012, revenues have risen from $413 million to $711 million in 2013 and are set to exceed $800 million this year, making the group the market leader in the contemporary fashion market.

If Woolworths' takeover of David Jones is successful, Woolworths plans to stock more of Country Road's four brands in all of David Jones stores and its online store, further boosting the group's sales and earnings. Country Road would play a key role in Woolworths' plan to lift group earnings by $130 million over five years.

"Country Road has been put in a terrific position," said Mr Hinzack.

"If Woolworths wants to introduce 20 per cent house brand (into David Jones) then Country Road could become the conduit by which the supply chain and manufacturing is best managed," he said.

"The Country Road/David Jones/Woolworths group will stand as a major force in Australian fashion retail and one could conceive a share price around $15, where it has traded, albeit quite temporarily."

With 12.3 million shares, Mr Lew's ARI would make a tidy profit on its investment.

However, whether Woolworths is prepared to outlay another $185 million to gain full control of Country Road - on top of its $2.2 billion bill for David Jones -- remains to be seen.

The issue is likely to come to a head next Tuesday, when Woolworths' shareholders meet in Capetown to approve the acquisition and a $1 billion capital raising to fund the deal.

Mr Hinzack does not believe Mr Lew will try to block the David Jones takeover, saying the $4 a share offer is generous.

"Firstly the bid really seems to be quite generous for David Jones and for Solly to pay $4 for a blocking stake he would be shooting himself in the foot," he said, echoing the views of many involve din the deal.

"But he knows the retail sector exceptionally well and there's no evidence to date he has anything other than a nominal stake in David Jones," he said.