Hills and Woolworths - Home Living Brand Licensing Arrangement, page-2

Let's understand exactly what's going on here. To do so, we need to revisit the agreement that was struck with Woolworths.

In 2014, Hills announced:

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Hills will grant Woolworths exclusive rights to the Hills heritage brand as it applies to certain product ranges (including clotheslines, laundry, garden and door products) for the Australian and overseas markets;
Hills maintains ownership of its heritage brand and the intellectual property in product patents and designs including the intellectual property in the Hills Hoist clothesline;
The licence is for a minimum period of seven years with options for renewal for four year periods at the end of each term for up to 19 years;
Hills will receive income from the use of the brand and intellectual property by way of an annual licensing fee that has the potential to increase if product sales exceed agreed levels;
and
Products will be marketed and distributed exclusively by Woolworths.
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My understanding is that all supply chain responsibility, product design work, supplier relationships and associated staff transitioned from Hills to the Woolworths group. That is, the result of the deal was that Hills quit all inventory, ceased all R&D, ended supplier relationships for all the products covered by the agreement. Woolworths gained the exclusive rights to the products that existed at the time (that is, the right to continue to procure those products from their manufacturers and to use the Hills brand on those products) as well as the right to apply the brand to other products that they may develop/create (probably subject to some Hills approval - we'd have to see the agreement to know for sure).

If my understanding is correct, it is no easy matter for Hills to simply transition the business to (say) Bunnings - because they (Hills) no longer have the staff or supplier relationships (or stock) to do so.

Probably the best plan would be to enter a licence agreement (similar to the agreement with WOW that has just been terminated). This approach would not require Hills to re-hire staff and re-establish the supply chain. But the income stream would likely be (at best) similar to the income stream that would have been expected under the WOW arrangement. Why would it be higher?

The unanswered (and unanswerable at present) question is this: does the short term gain (termination payment) from termination of the WOW arrangement fully compensate for the lost income, costs to re-establish the brand elsewhere (either under Hills control or by way of a new licence agreement) and likely inferior terms of any new agreement (given lack of competition for such an agreement...)?

To me, the termination seems at best neutral.