Woolworths Sells Financial Services Sector to Absa

April 21 - Woolworths Holdings financial services, with a customer base of 1.6 million, has been bought over by Absa Group Ltd., one of South Africa's largest retail banks.

Under the terms of new deal, Absa will acquire a controlling stake - 50 percent plus one share - in the business for the cost of R875 million. The services now under Absa's control include store and credit cards, insurance products and personal loans.

As a result of the sale, Woolworths will distribute R2.25 billion to shareholders and transfer other assets to a joint venture that will replace the original financial services department.

In a statement, Absa said that the transaction would "boost access to customers in the retailer finance market at point-of-sale, enabling Absa to increase its share of the consumer finance market."

The bank continued by saying: "This is the best way to grant extra credit to our customers and to grow both the financial business and retail sales."

In the past year and a half, rising interest rates in South Africa has led to an increase in borrowing costs and a rise in the number of customers with bad debt. A retail analyst, commenting on the Absa-Woolworths deal, said: "From Woolworths's perspective, it will  help them to better manage their credit and funding thereof. They are the first retailer to give over control of their store cards. That is going to be a challenge for the joint venture to manage should market conditions worsen."

The managing executive of Absa's credit card unit, Doug Walker said, "We will be funding the purchase through a single cash consideration. We will also be providing the required debt funding to Woolworths financial services. We see the the transaction as being compelling to Absa even in these times."