Woolworths offloads Dick Smith to private equity
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Nicholas Grove is a Morningstar journalist.
Woolworths (WOW) has found a buyer for its Dick Smith electronics business in the form of private equity firm Anchorage Capital Partners.
Under the sale, Anchorage will purchase 100 per cent of the business, including 325 stores that employ more than 4500 people.
Woolworths said it will receive initial cash proceeds of $20 million for Dick Smith in fiscal 2013 and will potentially benefit from any upside resulting from a future sale of Dick Smith by Anchorage.
The transaction is expected to complete in late 2012, Woolworths said in a statement. Other details of the transaction are confidential and not material, it said.
Morningstar head of equities research Peter Warnes said while the extent of any profit benefit from a future sale of Dick Smith by Anchorage has not been specified, Woolworths chief financial officer Tom Pockett "would not be salivating".
Regardless, Warnes expressed relief that the "painful exit from consumer electronics has finally happened".
"This exit should have occurred many years ago on (former CEO) Michael Luscombe's watch," Warnes said.
"Morningstar has continually indicated Dick Smith was a serious management distraction. The return on funds employed almost never exceeded the cost of capital.
"CEO Grant O'Brien has shown a non-nonsense and commonsense approach, which is refreshing."
Warnes said Woolworths management can now get on with the "real" business of running its Supermarkets, BIG W and Hotels divisions.
In January 2012, CEO Grant O'Brien announced Woolworths would exit the Dick Smith business after determining that it was "non-core in the size and context of the broader Woolworths retail platform and focus on maximising shareholder value".
Woolworths said it will now work closely with Anchorage and the Dick Smith team to commence a smooth transition to new ownership and separation from Woolworths.
During fiscal 2012, Woolworths took a restructuring charge of $420 million pending the divestment of Dick Smith. Following the completion of the sale, Woolworths said it will have no future downside exposure to the ongoing business.
Also on Thursday, Woolworths said it had signed an agreement to sell its stake in its Indian operation, Woolworths Wholesale, to a subsidiary of India's Tata Sons for $35 million.