Woolworths sells fin services unit stake to Absa

South African retailer Woolworths said on Wednesday that it is to sell 50% plus one ordinary share of Woolworths Financial Services to the Absa Group for R875 million.

The transaction is expected to be completed in the third quarter of the 2008 calendar year.

The deal is subject to a restructure of WFS to include all existing financial services products under WFS, unconditional approval by the South African competition authorities and other legal agreements.

Woolworths said it would advise shareholders when all the conditions precedent have been fulfilled.

Woolworth said it is the current intention of the board following the completion date to distribute R2.25 billion of the cash proceeds arising from the disposal.

The balance of cash realised will be used to retire other debt. It is expected that the distribution to shareholders will be implemented by way of a special dividend of R750 million, and, subject to prevailing market conditions at the time, an open market share repurchase of the balance, it said.

The company said financial services is important to the Woolworths strategy and overall customer proposition and provides Woolworths with a deeper understanding of customers' behaviour, enabling the business to tailor the retail offering to better meet customer needs.

The WFS business, which includes the store card, personal loans, Visa credit card and selected insurance products, has grown significantly and has become a sizeable business with an active credit account base of over 1.6 million customers.

At December 2007, the last reported 26 week period, Woolworths had net financial services assets of R5.559 billion, which included the consolidated assets of Account on Us under the securitised asset backed note programme.

The board, after having assessed the strategy for financial services, identified the need to access specialist financial services skills to accelerate future growth and to consider new funding arrangements to support this growth. It was decided that access to the required specialist skills and funding would best be achieved through a partnership with Absa and the disposal of a 50% plus one ordinary share interest in WFS to Absa, it said.

The proposed transaction is expected to deliver significant financial and operational benefits to WFS through access to Absa's funding, leading credit risk and customer value management capabilities, and expertise in enhancing existing and launching new consumer finance products including a premium Barclaycard offering, Woolworths said.

The joint venture also intends to maximise the opportunities presented by the Barclaycard brand, which Absa will make available through its license agreement with Barclays Bank PLC.

"The joint venture therefore brings together three powerful brands in Woolworths, Absa and Barclaycard with a common vision of extending the existing WFS brand into an even more compelling and attractive proposition for existing and new customers," Woolworths added.

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