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Woolworths buys 65% stake in Australian food services firm for $400 mln

People walk past a Woolworths supermarket following the easing of restrictions implemented to curb the spread of the coronavirus disease (COVID-19) in Sydney, Australia, June 16, 2020. Picture taken June 16, 2020. REUTERS/Loren Elliott/Files

(Reuters) - Australia’s biggest grocer Woolworths said on Wednesday it is paying A$552 million ($399.4 million) for about two-thirds of PFD Food Services and its properties as the coronavirus pandemic reshapes the industry.

Woolworths will pay A$302 million for a 65% stake of PFD and A$249 million for 26 freehold properties that will be leased back to the country’s second-biggest food service firm, which will continue to be run by current management.

The decision to move deeper into the food distribution and service market follows a partnership with PFD in April when there was a pandemic-sparked rush on supermarkets as customers looked to stock up on essentials.

The stake will give PFD, a family-run business whose CEO is Kerry Smith, access to Woolworths’ supply chain network and e-commerce offerings, while helping the supermarket chain with store product localisation.

Woolworths said the deal also includes three-year put and call options for the remaining 35% of PFD from the Smith family.

While PFD earnings have been hit by the pandemic, Woolworths expects the deal to support earnings from the first full year, and will be funded out of existing cash reserves and debt facilities.

($1=1.3822 Australian dollars)

Reporting by Nikhil Kurian Nainan in Bengaluru; Editing by Clarence Fernandez and Muralikumar Anantharaman