Woolies’ $243 million deal to be taken from Amazon

The supermarket giant is playing for online dominance, but experts have questioned the move after previous failures outside the grocery sector.

Woolworths is preparing to take on Amazon, Kogan and Catch with plans to buy Australian online retailer MyDeal for a whopping $243 million.

The deal, announced by the supermarket giant to its shareholders, will involve Woolworths taking an 80% majority stake in MyDeal for $1.05 per share, a 63% increase from the company’s last closing price in stock market where it stood at 65c.

MyDeal’s share price fell dramatically after its listing on the Australian Stock Exchange in December 2020, where its shares hit a record high of $1.71.

Woolworths announced the move offered greater choice for customers with MyDeal hosting 1,900 retailers offering six million products, but analysts have sounded the alarm over the deal.

Experts have questioned the deal, pointing to Woolworths’ poor track record with non-food businesses.

“Over the years, Woolworths has struggled to generate returns in non-food businesses – Masters, Dick Smith, Big W – so we wonder why they would allocate capital in this way,” said Tom Kierath, analyst at financial services company Barrenjoey.

“Especially when Woolworths’ excellent food business has recently suffered cost missteps. This acquisition appears to be a tacit recognition that Woolworths’ market is not gaining traction.”

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In September, the grocery giant launched its everyday marketan online marketplace that included items in categories including home, health and beauty, pet care, babies, and toys.

It was designed to allow shoppers to search for additional products while doing their regular grocery shopping online.

Woolworths’ move means it will battle Kmart owner Wesfarmers, which runs Catch.com which was bought in 2019 for $250million, US giant Amazon and Australia’s Kogan for online dominance.

But experts were also concerned that MyDeal, which launched in 2011, posted a loss of $5.8 million last year, despite a boom in online shopping during lockdowns and one million active users.

“We can’t help but think that if this hasn’t made money during Covid times, will it ever? said Mr. Kierath.

“Based on web traffic from SimilarWeb, MyDeal over the past four week period generated approximately 870,000 visits, which compares to eBay 12.6 million, Amazon 8.1 million, Kogan 1.6 million and Catch 1.7 million.

“Traffic has dropped significantly in recent months as the economy reopens.”

Craig Woolford, an analyst at financial firm MST Marquee, also warned that the battle for the best range, price and service online would be costly.

The deal was described as “slightly curious” by Morgans analyst Alex Lu, as he said Woolworths was moving into a general merchandise business at a time when consumers feared spending as the cost of life soared.

Woolworths’ foray into previous non-food areas saw a discount sale of electronics retailer Dick Smith to private equity investors in 2012, its homewares expansion with the Masters brand cut and a write-off of 300 million dollars for online business EziBuy.

The supermarket also pulled out of an $850 million bid on Priceline in January.

Brad Banducci, managing director of Woolworths, said MyDeal would bolster the group’s online capabilities in furniture, homewares and other bulky items, as well as Big W’s general merchandise.

He said the addition of MyDeal represented “a further step towards a more holistic customer experience around food and daily needs and significantly expands our market capabilities, particularly in general merchandise.”

Sean Senvirtne, founder and CEO of MyDeal, said the company was “delighted” to partner with Woolworths.

“This will help support the growth of our retail platform by accessing Woolworths Group’s capabilities in e-commerce, supply chain, retail, loyalty and more” , did he declare.

MyDeal brought in $260 million in gross transaction value in the 12 months to March 31, 2022 and recently launched an experiences marketplace called Amazed.com, selling business from over 250 vendors, including Melbourne Zoo , Global Ballooning and Experience Co.

The takeover will need to be accepted by MyDeal shareholders, receive court approval and clearance from the Australian Competition and Consumer Commission to proceed.

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