18 January 2016: Woolworths Limited (Woolworths) today announced that it intends to exercise its call option over the 33.3% interest in Hydrox Holdings Pty Ltd (Hydrox) held by WDR Delaware Corporation, a subsidiary of Lowe's Companies, Inc., (Lowe's) following notice of Lowe's election to be able to exercise its put option under the joint venture agreement.
Hydrox operates Masters Home Improvement (Masters) and Home Timber & Hardware (HTH) (together, 'Home Improvement').
Woolworths Chairman, Gordon Cairns, said; 'Upon being appointed as Chairman, one of my top priorities was to determine the future of the Home Improvement joint venture. In keeping with the spirit of the joint venture we have actively been engaging with our partner, Lowe's, on this issue.
'Our recent review of operating performance indicates it will take many years for Masters to become profitable. We have determined we cannot continue to sustain ongoing losses from this business.
'As a result of our engagement with Lowe's, it has advised that it intends to exercise the put option which is available to it under the joint venture agreement. The agreement requires this to happen before Woolworths may exercise its call option. Following the exercise of our call option, we intend to pursue an orderly prospective sale or wind-up of the business. This enables full ownership of the business by Woolworths in a shorter timeframe and gives us access to the widest range of exit options.
'This important decision allows Woolworths to focus its energy and resources on strengthening and executing its plans in its core businesses.
'Whilst we will move as quickly as possible, the put and call options process will take at least two months to complete and following this a potential sale process or other exit process will take additional time. The business will continue to trade through this period. Our top priority is to do the right thing by shareholders, staff, suppliers and customers and we will act quickly and openly to minimise the impact of this decision,' Mr Cairns concluded.
Woolworths has made provision in its FY15 accounts relating to the put option derived from the carrying value of the business at the end of FY15.
The process for determining the actual option consideration set out in the joint venture agreement is set out in the annexure to this announcement, and is expected to involve a negotiation with Lowe's and an independent expert valuation process which will apply the following:
- valuing the shares in an arm's length sale between a willing vendor and a willing purchaser on a discounted cash flow basis and a merger market basis;
- if Hydrox is carrying on business as a going concern, on the assumption that it is to continue to do so;
- taking into account any information as the independent expert reasonably thinks fit; and
- taking into account the stamp duty (if any) payable with respect to the transfer of the shares.
As part of the preparation of its half yearly accounts, Woolworths is also currently undertaking a review of the carrying value of its 66.7% interest in Hydrox which will be determined in accordance with applicable accounting standards.
Woolworths will continue to update the market as appropriate.
ENDS
Woolworths will conduct an analyst call this morning at 10.30am via webcast available at www.woolworthslimited.com.au
For further information contact:
Media
Claire Kimball, Corporate Communications
+61 432 696 650
Investors and Analysts
David Marr, Chief Financial Officer
+61 2 8885 1105
ANNEXURE - PUT OPTION AND CALL OPTION PROCESS
As previously disclosed to the market, Woolworths Limited (Woolworths), WDR Delaware Corporation (WDR), Lowe's Companies, Inc. (Lowe's) and Hydrox Holdings Pty Ltd (Hydrox) are parties to a Joint Venture Agreement (JVA) under which:
- Woolworths has granted WDR an option (Put Option); and
- WDR has granted Woolworths an option (Call Option).
Set out below is a summary of the key terms relevant to the Put Option and the Call Option now that the Put Option election notice referred to in the announcement has been given.
Put Option | |
Nature of option | Option to require Woolworths to purchase, or procure the purchase of, all of the ordinary shares in the capital of Hydrox held by Lowe's and its wholly-owned subsidiaries ('Lowe's Securities'). |
Exercise period | Saturday, 11 February 2017 to Monday, 13 March 2017. |
Call Option | |
Nature of option | Option to acquire, or procure the acquisition of, all of the Lowe's Securities. |
Exercise period | From the Put Option Notice Date (being 16 January 2016; deemed to be given today) to the earlier of:
|
General | |
Option Consideration[i | An amount equal to the aggregate of:
|
Valuation Price | The Valuation Price for the Lowe's Securities is the amount determined in accordance with the process set out below, which must be implemented immediately (now that the notice referred to in the announcement has been given.)
|
Completion | Completion of the sale of the Lowe's Securities under the Put Option and the Call Option must take place 10 business days after the later of:
|
[i] To the extent that WDR or any of its related bodies corporate have provided any advances to Hydrox, or any other amounts are owing to WDR or any of its related bodies corporate in connection with those advances, as at 18 January 2016 (together the Shareholder Debt), the aggregate outstanding principal amount of, and accrued interest on, all that Shareholder Debt would also form part of the option consideration. As at 18 January 2016, Woolworths is not aware of any Shareholder Debt owing to WDR or any of its related bodies corporate.
[ii] The JVA defines the 'Interest Rate' to be, in relation to a period, the aggregate of:
- the rate (expressed as a percent per annum) determined by Woolworths to be the rate incurred in respect of the most recent drawdown of funds by a member of the Woolworths Group, before the commencement of that period, under the Woolworths Group's bank debt facilities, extrapolated or interpolated (as applicable) for a 30 day interest period; plus
- 1.0 percent.
[iii] The JVA sets out the assumptions and bases on which any Independent Expert Valuation must be determined by the relevant independent expert, which include the following:
- valuing the shares in an arm's length sale between a willing vendor and a willing purchaser on a discounted cash flow basis and a merger market basis;
- if Hydrox is carrying on business as a going concern, on the assumption that it is to continue to do so;
- taking into account any information as the independent expert reasonably thinks fit; and
- taking into account the stamp duty (if any) payable with respect to the transfer of the shares.
Woolworths Ltd. issued this content on 2016-01-18 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 2016-01-22 16:10:25 UTC
Original Document: http://www.woolworthslimited.com.au/page/The_Newsroom/Press_Releases/Home_Improvement_Joint_Venture_Update/