It could be the worst deal Woolworths has done in 20 years, and will leave its shareholders staring down the barrel of hundreds of millions of dollars in forgone profits.
The Dick Smith chain that Woolies sold for peanuts is set for a pre-Christmas float worth $345 million.
Only four days after Dick Smith opens its initial public offer to retail shareholders, pricing stock in the consumer electronics group at $2.20 a share, Woolworths investors will gather for their annual meeting and are expected to question the board's rationale for selling off the once troubled chain one year ago for a relatively paltry $20 million.
Worse still for Woolworths shareholders, earlier this year the supermarket chain opted for a $74 million upfront payment to give up its rights to a portion of the float proceeds. It gave Dick Smith an ultimate sale price of $94 million.
The lost value was laid bare yesterday when Dick Smith's owners, the private equity group Anchorage Capital Partners, pushed the IPO button to crystallise instant profits for themselves. Dick Smith boss and a former Myer senior executive, Nick Abboud, believes the retailer, which has 359 stores across Australia and New Zealand and is forecasting fiscal 2014 sales of $1.3 billion, will pick up on a healthy tailwind of an improving retail landscape as it becomes a public company. "The electronics industry is coming out of several years of deflation and coming into some positive tailwinds," Mr Abboud said. "And so if you look at it there is some inflation coming back into the category, you have got the launch of PlayStation 4 in December, the digital changeover for TVs for Victoria and New South Wales, that's happening over the next few months.
"We have a very strong housing market, low interest rates, which is good for retail, the Reserve Bank have left open the door for a potential further interest rate cut and actually, from a timing point of view, there are some good things happening in retail."
But Anchorage will only sell about 65 per cent of Dick Smith to the public, holding on to 20 per cent for itself, while management has 10 per cent and Mr Abboud has a personal stake of another 6.5 per cent.
For a company under Woolworths that was going backwards, Dick Smith will have a market capitalisation of $520 million when it lists as 236.5 million shares are issued.
Woolworths chief executive, Grant O'Brien, has consistently stated that it made the right call getting out of Dick Smith last September, claiming the underperforming business was a distraction to management.
"It was 1 per cent of Woolworths sales," Mr Abboud said yesterday. "For them it wasn't material, for us and for myself it's very important, and 100 per cent focus for me. It's been a great opportunity."
It is also now a lost opportunity, with Mr Abboud firmly believing Dick Smith will be a growth stock.
"We have structurally put in to ensure that the business is more profitable, and you will see from the prospectus our margins are at 25 per cent, which is very healthy for electronics."
He said Dick Smith was now opening a store a week, had closed warehouses and vastly improved its supply chain and inventory management.
The retail offer is expected to open on November 22, with the shares to begin trading on the ASX on December 4.