SYDNEY, Australia -- Just weeks after completing an initial public stock offering, Davids Ltd. here has made an offer to acquire a competing Australian wholesaler, Independent Holdings Ltd., Adelaide.
John David, executive chairman of Davids, said the bid reflects both his company's commitment to the wholesale grocery industry and Davids' intention to expand from the eastern states of Australia to South Australia, which is IHL's core market area. Davids made its offer in mid-July.
IHL's board rejected Davids' initial offer of $3.12 (U.S.) per share (Australian $4.25). After Davids raised the offer to $3.53 (Australian $4.80) late last month, IHL's board said it would recommend acceptance of the bid to shareholders in the absence of a higher cash price. The offer valued IHL at about $110 million.
IHL is the only independent wholesaler in South Australia, with an estimated 34% share of the grocery market and annual sales of about $650 million (Australian $890 million). Supervalu, a leading U.S. food distributor based in Minneapolis, sold its 19% stake in IHL to Davids for a reported $28 million in mid-1992.
Davids is the leading independent grocery wholesaler in Australia, with annual sales of about $1.7 billion. John David said the takeover offer for IHL represented a significant premium over IHL's last sale price (of about $2.70 per share).
John Patten, managing director of IHL, said in a statement, "At Australian $4.80, Davids' offer is fair and reasonable for IHL shareholders." Patten said IHL also "had long supported" consolidation of the independent grocery sector in Australia.
"Our customers, the independent retailers, will benefit from the combined Davids-IHL group's ability to negotiate better prices," he said. "The combined group will also be better placed to help our customers compete more effectively and to enhance the expansion of industry banner groups."
Earlier this year, IHL sought to speed a consolidation effort among Australia's independent wholesaler sector. IHL made an unsuccessful bid to acquire Composite Buyers Ltd., a wholesaler in Victoria, Australia. IHL already owns 31% of Composite.
Many Australian observers believe the Australian supermarket industry is ripe for consolidation among the independent wholesaler sector, which is made up of five major players. Davids is at the forefront of the movement.
In April Davids was rebuffed in its attempt to acquire a smaller Australian wholesaler, QIW Ltd., by the Full Federal Court of Australia. It declined to appeal the decision.
At that time, John David said he still believed the grocery industry was on the verge of consolidation. "Despite the QIW judgment, opportunity remains for the rationalization of the independent grocery sector, and the benefits flowing from rationalization are such that rationalization will continue to occur."
Following its public offering of 123.4 million shares, Davids said it is well positioned to expand its operations. The wholesaler raised about $150 million in the June stock offering. (The David family held about 60% of the company's capital after the stock offering.)
"The capital-raising will place Davids in a strong position to continue with its expansion plans," John David said in a statement. "It is fitting recognition of the significance of the independent grocery industry in Australia."
Davids shares, which declined from the offering price of $1.21 to slightly more than $1 in late July, are traded on the Australian Stock Exchange.
In addition to its core Davids Distribution wholesale business, Davids Ltd. includes Campbells, a chain of 32 cash-and-carry units; 50% of the liquor distributor ALM, and various strategic investments. The major Australian chains also are in the midst of a transition. This was evident late last month as Coles Myer offered to buy back from Kmart Corp., Troy, Mich., its 21.5% shareholding in Coles Myer for about $925 million.
Coles, which is the second-leading supermarket operator in Australia, with a 23% share of the market and 380 stores, is in the midst of a major expansion plan. The chain, based in Melbourne, recently hired Dennis Eck as its managing director, supermarkets. Eck had been president and chief operating officer of Vons Cos., Arcadia, Calif.