Is the Woolworths share price a buy following the latest acquisition or a no deal?

Brokers are perplexed about Woolworths’ latest acquisition offer.

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Confused woman at a supermarket.

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Key points

  • The market bid the Woolworths share price slightly higher following its latest acquisition offer on Friday
  • The supermarket giant is looking to enter the online retail sphere again, this time offering to buy 80% of MyDeal's stock at a 63% premium 
  • But brokers are sceptical of the transaction due to MyDeal's financial year 2021 loss, Woolworths' previous acquisition fails and the current consumer environment

The Woolworths Group Ltd (ASX: WOW) share price lifted after the company offered to buy MyDeal.com.au Ltd (ASX: MYD) on Friday.

But could the S&P/ASX 200 Index (ASX: XJO) company’s latest attempt to get onto the online marketplace scene put the Woolworths share price in the ‘buy’ zone?

Is Woolworths a buy after MyDeal offer?

Brokers are sceptical of Woolworths latest acquisition attempt despite the company’s share price trading in the green following its announcement.

The supermarket giant has offered to buy an 80% stake in MyDeal for around $218 million – or $1.05 per share. The proposal values the business at $271.8 million.

Woolworths’ offer represents a 62.8% premium on the MyDeal share price’s previous undisturbed close. Perhaps unsurprisingly, stock in the online marketplace rocketed nearly 56% on Friday.

Woolworths’ intent to snap up MyDeal might remind readers of Wesfarmers Ltd (ASX: WES)’s 2019 acquisition of Catch.com.au. It might also raise eyebrows after the supermarket giants’ unsuccessful attempt to integrate EziBuy into its Big W brand. After acquiring EziBuy in 2013, Woolies offloaded it in 2017.

What are the experts saying?

Barrenjoey analyst Tom Kierath is reportedly perplexed about the proposed transaction.

He questioned why Woolworths would pay such a premium for MyDeal. Particularly as the online marketplace suffered a $5.8 million loss last financial year, The Age reports.

If [MyDeal] didn’t make money through the COVID period, will it ever?

Barrenjoey’s Tom Kierath, as quoted by The Age.

The analyst also noted the supermarket giant has previously struggled to make profits in non-food businesses. It has racked up notable failures in Dick Smith and Masters.

Morgans analyst Alex Lu is also reportedly sceptical. Lu noted the transaction comes as many Australians worry about the cost of living – which could dampen demand for general merchandise – according to the newspaper.

Meanwhile, Citi is reportedly drawing parellels between Woolworths’ bid for MyDeal and its EziBuy flop.

“Both businesses are not market leaders and we are also concerned that visibility on MyDeal’s performance will be low once consolidated as EziBuy’s was previously,” The Australian quoted Citi analyst Adrian Lemme as saying.

The broker has a $40.30 price target and a ‘buy’ rating on Woolworths shares.

Woolworths share price snapshot

The Woolworths share price has struggled through 2022 so far.

It has tumbled 8.1% year to date. Meanwhile, the ASX 200 has slumped 5.8%.

In early trading on Monday, shares in the supermarket giant are up 0.11% at $35.39.

However, the company and the index have recorded respective gains of 0.3% and 1.4% over the last 12 months.

Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Wesfarmers Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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