Billionaire retailer Solomon Lew — back in the headlines for hijacking the $2 billion bid for David Jones — is an unnerving character, with his decades-long feuds and revenge served cold. He is also an expert in not breaking the law.

A case in point is the infamous Yannon transaction, often referred to in passing but rarely in detail.

Lew had been a director of Coles Myer since 1985, rising to become executive chairman. In 1989 Lew’s Premier Investments had borrowed heavily from ANZ to buy a 12.5% stake in Coles from Westfield for $450 million, and it was racking up losses as interest rates soared and the share price slid. ANZ insisted Premier raise $100 million through a preference share issue, underwritten by Rodney Adler’s FAI. Unknown to almost everyone, a trustee company called Yannon was set up by CS First Boston — just a few floors down from Lew at Melbourne’s 101 Collins Street — with the sole purpose of buying $25 million worth of the Premier preference shares, with finance and an indemnity from Coles. The deal cost Coles $18 million and effectively transferred Lew’s private losses over to the retail behemoth. None of this was disclosed by Coles.

The Yannon transaction was only revealed by Coles’ newly appointed finance director, Philip Bowman, who was determined to get to the bottom of it. Bowman was sacked for his efforts three months into his job, in September 1995, and immediately went public. It was a bombshell: had Lew misused his position as a director of both Coles and Premier? Lew stepped down as chairman and ultimately — after a bruising battle with institutional investors — was forced to quit the Coles board altogether in 2002.

“Now Lew is at it again: prising a windfall gain from a minority shareholder position and not breaking the law.”

Lew maintained his innocence, denying any knowledge of Yannon, but he did contribute to a $12 million civil settlement with Coles, brokered by then Australian Securities Commission, which embarked on one of its longest-ever investigations, spending more than four years digging into events at Coles. The commission believed Lew knew about Yannon all along — it said so in a 1996 civil court appearance — and was believed to have recommended criminal charges, as the ABC’s Karon Snowdon reported at the time here and here.

The Department of Public Prosecutions baulked. Then-ASIC chairman Alan Cameron explained to journalists in January 2000 that ASIC had collected 253,500 pages of documents, served 435 notices on different parties, examined 93 people over 214 sitting days, and the transcript of evidence exceeded 12,500 pages. But Cameron cited the difficulty of investigating events so long after they had transpired, and no charges were laid. Cameron said the conclusion of the Yannon investigation marked “the end of the ’80s”. Then, as now, ASIC was panned as a toothless tiger.

From there Lew spent years agitating against the company and plotting his retribution until — as Pamela Williams portrayed in loving detail in a series for The Australian Financial Review in 2007 — he talked private equity raiders KKR into launching a bid for Coles, which put the supermarket giant in play, and ultimately sold his stake to Wesfarmers at a hefty profit. Lew’s wealth only grew: last week’s Rich List put his fortune at $2 billion.

Now Lew is at it again: prising a windfall gain from a minority shareholder position and not breaking the law. Using derivatives, over six weeks in May-June Lew managed to quickly and quietly buy a 10% stake in David Jones, which could be enough to block the stunning $4-a-share takeover bid announced by South Africa’s Woolworths Holdings in April. The share price soared, and Lew paid full freight for his DJs shares, spending $209 million or $3.94 a share.

There was speculation Lew would mount his own counter-bid or make a play for DJs’ prize real estate, but what Lew really wanted was a shiny new instrument for the infliction of extreme pain on Woolworths, with whom he owns another listed retailer, Country Road. For 17 years Lew has sat tight on a 12% minority stake, refusing to sell to Woolworths, who own almost all the rest, at what he felt was a discount. Lew was dead right: Country Road shares were massively undervalued, and have tripled this year after a series of acquisitions and a jump in profits. When the DJs bid was unveiled, Lew realised his stake in Country Road was worth more to Woolworths than ever before: as it turned out, $17 a share or $209 million. As the ABC’s Ian Verrender pointed out last week, Lew got into Country Road for less than $2 a share, which works out at a holding cost of roughly $6.35, meaning at least $10 a share or $123-odd million is pure profit. Not bad for a couple months’ work.

Which calls into question the law of collateral benefit: is Lew extracting for himself a benefit, which is not being offered to the rest of DJs shareholders? Should Lew be treated as a member of a different class of DJs shareholders when it comes time to vote on the Woolworths bid on July 14? Or should he abstain? Strictly speaking, the law of collateral benefit does not apply to a scheme of arrangement — which this takeover is — on the rationale that shareholders get to vote and the whole transaction is approved by a court. ASIC has made clear that it believes the law of collateral benefit should apply more broadly.

The most recent comparison is Whitehaven Coal’s 2012 acquisition, by way of a scheme, of Nathan Tinkler’s listed Aston Resources and private Boardwalk Resources — an exploration company that the independent expert warned was being overvalued in the transaction, but whose sale was an essential condition of the three-way deal. ASIC is believed to have intervened to ensure that Boardwalk shareholders — mainly Tinkler himself — did not vote in that transaction. The judge observed there was a collateral benefit in the deal for Boardwalk shareholders, but noted that ASIC had not appeared to object, and waved the vote through.

Westfield’s Frank Lowy was equally successful in 2005 when he used  derivatives to build a stealthy 4.8% stake in GPT as a means of block a takeover bid by its old parent company, developer Lend Lease. Lowy was able to use that stake as a bargaining chip to extract stakes in three prime GPT shopping centres and, despite an outcry from institutional investors, was able to vote his GPT shares in favour of an alternative (ultimately disastrous) plan to internalise its management and enter into a joint venture with Babcock & Brown. Where were the regulators? Nowhere. The deal sailed through, Westfield got three new malls to run and sold out of GPT ASAP.

Though Woolworths’ bid for Country Road was only unveiled once Lew’s DJs stake was made public, and although the Country Road bid is conditional on success of the DJs bid, we are asked to believe in effect that the two bids are unrelated. We are asked to believe that Premier and Woolworths have done no deal covering Lew’s voting intentions when the DJs bid is determined. We may not believe it, but we can’t prove otherwise.

If it all pans out the victims, if there are any, will be the South African shareholders of Woolworths, overpaying for Lew’s stake in Country Road. The winner is Lew.