Myer sought ‘merger of equals’ with rival David Jones; David Jones Rejects Merger Offer from Myer Holdings

David Jones Rejects Merger Offer from Myer Holdings

Department Store Owner Says Proposal Didn’t Represent Sufficient Value for Shareholders

DAVID ROGERS

Jan. 30, 2014 7:45 a.m. ET

SYDNEY—Australian department store owner David Jones Ltd. DJS.AU -0.69% said it rejected a merger proposal from Myer Holdings Ltd. MYR.AU -2.28% late last year, adding it wasn’t currently in discussions with its larger rival.

In a regulatory filing Thursday, David Jones said it was approached about a possible merger with Australia’s biggest department store on Oct. 28, but soon rejected the proposal after deciding that it “did not represent sufficient value for David Jones shareholders.”

Myer proposed a scheme of arrangement, under which David Jones would have been acquired in exchange for Myer shares at a “zero premium exchange ratio” of 1.06 Myer shares for each David Jones share, based on the respective 12-month volume weighted average prices at that time, David Jones said. The proposal also included a request for due diligence access.

“The execution of any such a transaction would have substantial commercial, market, business and regulatory risks including the Australian Consumer and Competition Commission review process,” David Jones said.

 

Myer sought ‘merger of equals’ with rival David Jones

January 30, 2014 – 10:07PM

Nabila Ahmed, Sue Mitchell and James Chessell

Department store chain Myer approached upmarket rival David Jones about a $3 billion scrip merger just days before two David Jones directors bought shares in the company late last year, The Australian Financial Review has reported.

It is believed Myer, advised by investment bank Goldman Sachs and consulting group Bain, made a full proposal for a “merger of equals” in late October.

David Jones chairman Peter Mason is believed to have received the offer, including a letter from his Myer counterpart Paul McClintock, on October 28.

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Mr Mason, advised by boutique investment house Gresham Corporate Advisory, is believed to have rejected the offer two weeks later. But that was not before non-executive directors Leigh Clapham and Steve Vamos bought shares in the company on October 29. They sought and received approval from Mr Mason to buy the shares.

The timing is critical because the Australian Securities and Investments Commission has just concluded a two-month investigation of the share purchases, following accusations of inappropriate trading from investors. David Jones shareholders were concerned because Mr Clapham and Mr Vamos bought the shares three days before a better-than-expected quarterly sales update sent the stock soaring 15 per cent to $3.08. Mr Mason had approved the purchases but later apologised to shareholders.

ASIC, which examined emails between Mr Mason and the two non-executive directors as part of a two-month investigation into the purchases, this week said there was insufficient admissable evidence to pursue a case against Mr Vamos and Mr Clapham.

The Australian Financial Review has learnt that ASIC knew about the Myer merger proposal and the directors’ knowledge of it. ASIC became aware of the Myer proposal during investigations into share purchases by two David Jones’ non-executive directors late last year.

“ASIC has investigated the David Jones matter and has considered thoroughly all relevant information, including the conditional proposal, and decided to take no further action,” ASIC spokesman Matthew Abbott said.

However, it is believed ASIC could re-open its investigation if and when fresh information comes to light. Under David Jones’s own share trading policy, it is illegal for directors, officers or consultants to trade in the company’s shares if they possess unpublished price-sensitive information concerning the company.

David Jones’s decision not to disclose the offer is also likely to be scrutinised given the carve-out provisions under continuous disclosure laws allow companies to keep incomplete proposals confidential. Myer’s offer has been described by sources as “full and complete”.

Mr McClintock argued a union would strengthen the department store chains, which have been struggling in the face of an onslaught from fast-fashion chains, international online retailers and overseas department stores.

Mr McClintock highlighted major savings and proposed the merged company be based in Melbourne, where Myer has its headquarters.

Myer is thought to have offered roughly a 30 per cent premium to the David Jones share price, which traded at $2.75 in the week before the offer was received by Mr Mason. Myer proposed a scheme of arrangement, which would require approval from David Jones shareholders.

The combined group would have sales of $4.7 billion – before any store closures – and earnings before interest and tax around $350 million – before any savings.

 

David Jones says rejected merger approach from Myer

4:44am EST

SYDNEY (Reuters) – Australian retailer David Jones Ltd (DJS.AX: QuoteProfileResearchStock Buzz) said it had rejected a takeover approach from Myer Holdings Ltd (MYR.AX: QuoteProfileResearchStock Buzz) worth A$1.4 billion ($1.23 billion) in October 2013 and was no longer in talks.

Both David Jones, Australia’s No.2 department store operator, and larger rival Myer, have valuable property assets but have been struggling with soft consumer confidence, patchy retail spending and a shift to more online retailing.

David Jones said Myer had offered a nil premium script deal at a ratio of 1.06 Myer shares for every David Jones share, which were trading at A$2.71 at the time.

The company said it considered the approach, but concluded that the offer did “not have sufficient merit for David Jones shareholders”.

Officials at Myer were not immediately available to comment outside of normal office hours.

David Jones shares closed on Thursday at A$2.87 per share, giving it a market capitalization of A$1.54 billion.

In mid-2012, David Jones revealed a little known UK-based private equity fund had made a highly conditional A$1.65 billion takeover approach. The news sent shares surging before the mystery offer was pulled days later, sending its shares plunging and prompting a probe by regulators.

($1 = 1.1425 Australian dollars)

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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