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Myer offer for David Jones has let the genie out of the bottle


Myer’s offer to DJs probably won’t be the last, writes Malcolm Maiden.

Myer has put David Jones in a takeover 'bear hug', whether it wanted to or not.

Myer has put David Jones in a takeover 'bear hug', whether it wanted to or not. Photo: Rob Homer

Myer wanted to avoid putting its department store competitor David Jones into a classic takeover ‘‘bear hug’’ when it approached DJs with a merger proposal at the end of October last year.

As DJs mulled the offer, Myer made no public statements. After DJs formally rejected it a month later, it remained silent. A “bear hug” would have seen it go public, to try and force the DJs board to the negotiating table.

But a bear hug appears to be developing under its own steam. The bid was flushed out by Fairfax Media, with DJs making a statement after the close of trading on Thursday night confirming the approach and stating that it was not worth pursuing. Myer also released full details of its proposal.

Myer’s response includes a copy of the letter Myer chairman Paul McClintock sent to DJs chairman Peter Mason setting out the proposed terms of a marriage.

DJs would currently contribute about 37 per cent of the revenue of the merged businesses and 41 per cent of merged earnings before interest and tax, but the deal was proposed as a scheme of arrangement merger of equals that would see Myer issue 1.06 shares for every DJs share.

Myer told DJs that both brands would still have operated separately but under single ownership.

Synergies - savings from merged operations and revenue gains wrought from the marriage – would have run at more than $85 million a year, Myer calculated.

Based on the earnings multiples that the shares of the two groups trading on, these synergies if captured would create over $1 billion of value for the merged retail group.

Myer also told DJs that it had made preliminary contact with the Australian Competition and Consumer Commission – something the ACCC has confirmed – and was confident the merger was in fact pro-competitive, because the larger business would be more competitive ‘‘in what is now a globally competitive market.’’

The ACCC did not launch an examination of the proposal that DJs rejected, but if the deal was revived there would be two key issues.

The first, the impact of the merger on shoppers, would probably not be a deal killer. The share the two groups have of total non-food retail sales has fallen from nearly 8 per cent in 2007-2008 to less than 5 per cent now as internet shopping expands, specialty retailers compete, and new ‘‘fast fashion’’ chains such as Zara invade Australia.

The second issue is what impact a merger would have on shopping centres, where Myer and DJs are often both anchor tenants. That would be an area of interest for the ACCC: Myer told DJs in October that it believed landlords would welcome the creation of a larger stronger retail enterprise with the merger.

It’s possible that all these issues are not academic now that the full details of the October approach have been revealed.

Myer didn’t want to pull DJs into a bear hug. It said in its statement on Friday that the full details of its proposal were never intended for release. Now that it has released them in response to DJs' assertion that the offer was not worth engaging on however, DJs is coming under pressure.

DJs shareholders had earlier expressed unhappiness about the departure of DJs chief executive Paul Zahra and about director share dealings that occurred last October (ASIC has examined them and is not taking action, and says it was aware of the Myer approach).

Now, after the latest revelations there is agitation for the DJs board to reconsider Myer’s proposal. for example Simon Marais, a director of the Allan Gray funds management group, DJs’ fourth largest shareholder with more than 5 per cent, said on Friday that a merger made sense, and called on the board to act in the best interests of all shareholders.

It’s quite possible that other potential acquirers will look at DJs now, too: with details of the Myer approach out for all to see, the takeover genie may be out of the bottle

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