David Jones takeover after 175 years in business
Iconic Australian retailer has been in business since 1838 but may be bought out by a South African company.PT0M55S http://www.canberratimes.com.au/action/externalEmbeddedPlayer?id=d-36cfe 620 349 April 9, 2014
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The David Jones board has recommended a takeover offer from South African retail group Woolworths, trumping any merger talks with rival Myer Holdings.
David Jones shares have surged 23 per cent to $3.925 in morning trade. The Woolworths offer, worth $2.148 billion, is a 25.4 per cent premium on Tuesday's closing price of $3.19.
The South African retailer has offered $4 per share to acquire David Jones. Photo: Andrew Quilty
The last time David Jones traded at $4 was July, 2011.
Woolworths Holdings is a listed South African retail group founded in 1931.
It is understood that the two parties have been in talks over the proposed takeover since March after a change in the chairmanship at David Jones.
The interior of a Woolworths store in South Africa. Photo: woolworths.co.za
Woolworths South Africa owns a controlling stake in Australian-listed Country Road.
“We’ve been looking at DJs for a long time. We’ve been eyeing them off for more than a year. We want to build one of the biggest retailers in the southern hemisphere,” Woolworths chief executive Ian Moir said.
Woolworths is planning to expand David Jones, with Mr Moir stating he believes they can add more than $130 million to David Jones’s bottom line over the next five years.
Mr Moir ruled out redundancies at the department store and said Woolworths would not be bringing a new team over from South Africa to replace the current management.
“You can’t save your way to a great business. There’s no cost cutting or reduction of labour force involved. In fact, what we see over the next five years is more people being employed by David Jones,” Mr Moir said.
Mr Moir said he saw cost saving opportunities through streamlining fashion line offers across both Australia and South Africa, with Woolworths was bringing the necessary infrastructure to increase David Jones’s private label offer from around 3 per cent of sales to 30 per cent.
“I am pleased that the Woolworths proposal recognises the attractive outlook for David Jones including the benefits that have and will flow from the continued implementation of our Future Strategic Direction Plan,’’ David Jones chief executive Paul Zahra said.
David Jones and Myer had been in discussions over a $3 billion proposed merger. The deal was made public in late January, since then David Jones shares have jumped more than 10 per cent, while Myer shares have risen close to 10 per cent.
Myer approached David Jones with a merger offer of 1.06 of its shares for each David Jones share, but the bid was rejected because DJs did not believe it represented sufficient value and had no premium.
‘‘In the absence of a superior proposal and subject to an independent expert concluding that the [Woolworths] scheme is fair and reasonable and in the best interests of David Jones shareholders, the board of David Jones unanimously recommends that David Jones shareholders vote in favour of the scheme,’’ the company said in an announcement to the Australian Securities Exchange.
News of the South African offer prompted Myer to withdraw its offer.
"While we believe in the strategic merits of our proposal and the potential value accretion for both sets of shareholders, we have always maintained a disciplined approach to valuation, and as a consequence we will advise David Jones today of the withdrawal of our proposed merger of equals," the company said in an ASX statement.
"Myer remains fully committed to continuing to progress our well-established five-point plan with a number of new initiatives to drive sales and profitability while continuing to invest in the growth areas of the business," Myer CEO Bernie Brookes said in the statement.
Myer would continue with its plan to revamp its department stores and "will continue to be a robust competitor," Mr Brookes said.
The Australian Woolworths, meanwhile, issued a clarification confirming that it was not the bidder. "Woolworths Limited has never had any direct link with Woolworths South Africa," it said.
Allan Gray chief executive Simon Mararis said David Jones had always had the upper hand in merger talks and now Myer could not compete with the offer from Woolworths. Allan Gray holds a 4.99 per cent stake in David Jones.
As fashion company in the southern hemisphere there are many cost efficiences that can be undertaken that would not work with buying a European or American business, such as a single buying team and mass producing for one season, so the offer makes sense for Woolworths, Mr Mararis said.
“In South Africa, retail shares have boomed spectacularly for a long time, so the valuations are much higher. You can see why they look around and go ‘hey that looks cheap in Australia’ and come here,” Mr Mararis said.
Wilson Asset Management, which holds a minority stake in David Jones, said the bid provides cash certainty for shareholders and is from a reputable bidder in Woolworths.
“Our initial thoughts are it looks like a pretty good price. It looks to be more compelling than Myer’s bid. It looks like it’s a pretty clean bid, it doesn’t look like there are too many problematic conditions, but it is early days,” Wilson Asset Management senior equity analyst Martin Hickson said.
The takeover will require the majority of David Jones and Woolworths shareholders to vote in favour of the deal. It is anticipated that shareholders will have the opportunity to vote in mid-June 2014.
David Jones is being advised by Gresham Advisory Partners, Macquarie Capital and Herbert Smith Freehills.