Woolworths pays $119m for 67 stores

Woolworths is buying 67 stores from the Dairy Farm subsidiary Franklins

By CNN's Geoff Hiscock, Asia business editor

SYDNEY, Australia (CNN) -- Australian retailer Woolworths will pay $119 million to buy 67 stores from the loss-making discount chain Franklins.

The stores are the first of 282 to be sold by Franklins' parent, the Hong Kong-based Dairy Farm Group, as it quits its unhappy investment in the Australian supermarket scene.

Woolworths, which with rival Coles Myer dominates Australian retailing, will start taking over the stores from this month.

Woolworths said on Monday the stores it is buying generate an annual turnover of about $635 million, but would make only a "minimal" profit contribution in 2001-02 after funding costs.

The market viewed it as a positive move, with the retailer's shares closing Aust.20c higher at A$9.97.

Woolworths chief executive Roger Corbett said the group would invest about $180 million in 2001-02 to buy and upgrade the stores.

"The net working capital cost (inventory less trade payables) is expected to be negligible," Corbett said.

First in a number of transactions

In a statement issued Monday, Dairy Farm said the deal with Woolworths was the first of a number of transactions in its "managed sell-down process".

The Australian Competition and Consumer Commission, which examined the deal, has given it an in-principle clearance. Woolworths will undertake to sell some of its existing stores to satisfy the ACCC over local competition issues.

Dairy Farm will use the proceeds to reduce debt in Australia. It said talks with other parties interested in buying its remaining stores are "advanced".

Dairy Farm, which operates 2,200 outlets in the Asia-Pacific -- mainly supermarkets, hypermarkets, convenience stores and drugstores -- had sales of $6.6 billion in 2000.

Dairy Farm announced it was quitting its Australian operations in April, after investing more than $90 million in Franklins in 1999 and 2000. Franklins lost $71 million last year and $27 million the year before.

Woolworths is the biggest supermarket chain in Australia, with annual sales of more than $11 billion.

Its chief rival, Coles Myer, which operates department stores and liquor outlets as well as supermarkets, has total annual turnover of about $12 billion, but only about 60 percent of this comes from supermarkets.