Retail mogul cries foul over Country Road

Lew's private investment vehicle‚ Australian Retail Investments (ARI)‚ has held an 11.84% stake in Country Road since 1997‚ when Lew refused to sell into the takeover offer from Woolworths. The Cape Town-based company owns 87.88% of Country Road‚ just shy of the 90% that enables it to make a compulsory acquisition of all outstanding Country Road shares.

Country Road announced earlier this month its intention to buy Witchery for A$172m (R1.5bn) from Gresham Private Equity.

The proposed acquisition is to be funded through a A$92m five-year senior bank facility and a one-for-two pro-rata renounceable rights issue priced at A$2.66 a share‚ to raise A$92m.

Lew claims that he will be "oppressed" as a minority shareholder if Country Road's takeover of Witchery goes ahead.

"Our client is concerned that the rights issue has been implemented by the majority directors of Country Road appointed to the board by Woolworths as part of a general strategy ... to enable Woolworths to compulsorily acquire the minority shareholdings in Country Road‚" a legal letter on behalf of ARI states.

Country Road has asked Lew to pay A$11m as part of the rights issue.

If Lew does not participate in the rights issue‚ his stake will be watered down to 8.2%‚ giving Woolworths the ability to buy him out of Country Road compulsorily. ARI has also said that Country Road's information regarding the rights issue was "insufficient".

But in a statement to Business Day yesterday‚ Woolworths said Country Road had strongly rebutted ARI's claims.

"Country Road confirms its view that all necessary information has been provided to shareholders in relation to the rights issue‚" the company said.

Although ARI has backed away from an earlier threat to take legal action that would in effect block the deal‚ it said it would go to court seeking further information and documents from Country Road.

It is believed that Country Road will not depart from the announced timetable for the rights issue‚ including the expected dispatch of the offer booklet today. The deal is set to be completed by October.

Brian Walker‚ MD of Australia's Retail Doctor Group‚ a retail consulting company said: "Mr Lew carries a fairly large stick here and was always going to raise objections‚ as many Country Road shareholders would if they see their investment diluting."

According to Country Road‚ the transaction is expected to deliver synergies of about A$10m‚ annualised‚ to be achieved over four years.