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Could Woolworths Limited sell Big W?

Credit: BIGW

Woolworths Limited (ASX: WOW) is believed to have reached out for advice regarding the future of its Big W business.

According to Fairfax Media, sources close to the matter believe Woolworths is in discussions with corporate advisory boutique, Luminus Partners, regarding the potential sale of Big W.

While no formal agreement is believed to have been reached between the two parties, it’s believed they have been in talks for “some months“, according to the Australian Financial Review.

Will they or won’t they?

Speculation over a potential takeover of various segments of Woolworths’ business is now commonplace. Masters, one of the company’s home improvement businesses has at times been suggested as a worthy target. Even Woolworths itself (i.e. the whole company) is currently believed to be in the crosshairs of two giant private equity firms.

Competing against Kmart and Target, owned by Woolworths’ rival Wesfarmers Ltd (ASX: WES), Big W has lost much of its mojo in recent years. The tough competition has been reflected in a poor earnings performance.

Data sourced from Woolworths' Annual Reports, 2011 – 2015.

Data sourced from Woolworths’ Annual Reports, 2011 – 2015.

A takeover offer for parts of — or all — the company couldn’t be ruled out, especially as the Woolworths share price remains under pressure. The Woolworths share price is down roughly 30% since the beginning of 2014.

Combined with a falling Australian dollar, the purchasing power of USA-based private equity firms has increased by around 42% since January 3, 2014, according to my calculations. Therefore, it may only be a matter of time before Woolworths is offered something for at least one of its businesses.

Foolish takeover

In my opinion, a private equity takeover of Woolworths would likely be very bad news for its employees. However, it could be a blessing for shareholders who’ve sat back and watched the company’s share price plunge in recent times.

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Motley Fool contributor Owen Raskiewicz owns shares of Woolworths Limited.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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