Woolworths is gearing up to take on Amazon, Kogan and Catch with plans to buy Aussie online retailer MyDeal for a whopping $243 million.
The deal, announced by the supermarket giant to its shareholders, will involve Woolworths taking a majority 80 per cent stake in MyDeal for $1.05 per share, a 63 per cent increase on the company’s last closing price on the stock market where it stood at 65c.
MyDeal’s share price has dropped dramatically after it listed on the Australian Stock Exchange back in December 2020 where its shares hit a record $1.71.
Woolworths has heralded the move as providing greater choice for customers with MyDeal hosting 1900 retailers that offering six million products, but analysts have sounded the alarm over the deal.
Experts questioned the deal, highlighting 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 question why they would allocate capital like this,” said financial services firm Barrenjoey analyst Tom Kierath.
“Especially when Woolworths’ outstanding food business has had recent cost missteps. This acquisition looks to be a tacit acknowledgment that Woolworths marketplace isn’t gaining traction”.
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In September, the grocery giant launched its Everyday Market, an online marketplace which included items in categories including household, health and beauty, pet care, baby and toys.
It was designed to allow shoppers to browse for extra products while completing their regular grocery shopping online.
Woolworths’ move means it will be battling it out with Kmart owner Wesfarmers, which runs Catch.com that was snapped up in 2019 for $250 million, US giant Amazon and Australian owned Kogan for online domination.
But experts were also concerned that MyDeal, which was launched in 2011, reported a $5.8 million loss last financial year, despite a boom in online shopping during lockdowns and having one million active users.
“We can’t help but think if it didn’t make money through the Covid period will it ever? Mr Kierath said.
“Based on SimilarWeb web traffic, MyDeal in the most recent four week period generated around 870,000 visits this compares with eBay 12.6m, Amazon 8.1m, Kogan 1.6m and Catch 1.7m.
“Traffic has declined significantly in recent months as the economy reopened.”
Craig Woolford, analyst at financial firm MST Marquee, also warned that the battle to have 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 taking on a general merchandise business at a time when consumers were concerned about spending as the cost of living skyrockets.
Woolworths foray into previous non-food areas saw a fire sale of electronics retailer Dick Smith to private equity investors back in 2012, its homeware expansion with the brand Masters cut and a $300 million write off for online business EziBuy.
The supermarket also pulled out of a $850 million bid for Priceline in January.
Brad Banducci, Woolworths chief executive, said MyDeal would boost the group’s online capabilities in furniture, homewares and other bulky goods, and Big W’s general merchandise.
He said the addition of MyDeal represented “a further step towards delivering a more holistic customer experience in food and everyday needs and materially expands our marketplace capabilities, especially in general merchandise”.
Sean Senvirtne, MyDeal founder and CEO, said the company was “excited” to partner with Woolworths.
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“It will help support the growth of our retail platform by accessing Woolworths Group’s capabilities across e-commerce, supply chain, retail, loyalty and more,” he said.
MyDeal reported $260 million in gross transaction value in the 12 months to 31 March 2022 and recently launched an experiences marketplace called Amazed.com, selling activities from more than 250 suppliers 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 go ahead.
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