The $100 million raid on Myer shares could be the first step in an ambitious plan to merge the business with long-time rival David Jones, according to a leading retail analyst.
Billionaire Solomon Lew’s Premier Investments has confirmed it was behind the raid, which comes just three years after Mr Lew bought a similar stake in David Jones to use as leverage in its takeover by the South African retailer Woolworths.
Retail Doctor chief executive Brian Walker said the move to buy a 10 per cent stake in Myer was most likely part of a strategy years in the making.
“What we see is the ultimate marriage of David Jones and Myer which was mooted a couple of years ago,” Mr Walker said.
“The market place conditions are continuing to look like that will occur and that would place someone like Solomon Lew in a box seat.”
Certainly Myer is now priced in bargain bin territory for any buyer.
Myer shares may have spiked 19 per cent on Monday when news of a mystery buyer emerged, but they are only a third of their value six years ago.
Department stores being crushed by new competition
Mr Walker said investors have not remained faithful to Myer and David Jones.
Against that backdrop, it’s hard to see anyone wanting to spend $100 million on Myer shares, unless there was an ulterior motive.
“I think we’re looking at the marketplace from an investor perspective — such as Solomon Lew, who’s known to be a disruptor into retail — and saying we can move into a Myer by way of example, make great synergies and savings, build our portfolio of brands and continue to grow into something that once was Myer,” Mr Walker said.
Mr Lew has a long history with Myer, having been a director and chairman of the old Coles Myer group, before being forced off the board in acrimonious circumstances in 2002.
Since then he has built up his personal fortune through the brand-focussed Premier Investments business, which houses names such as FCUK, Smiggle and Peter Alexander.
A dramatically changing retail landscape is seeing specialty stores, the internet, foreign competition and changing consumer tastes take a brutal toll on Myer and David Jones.
In Myer’s latest results, profit may have been up slightly, but revenue continued to fall.
Lincoln Indicators chief executive Elio D’Amato noted Myer’s recently profitability is more about cost cutting.
“Myer hasn’t really grown its earnings for the last six years, so on that basis alone, unfortunately it’s just not a company that has the growth earnings profile of an investor seeking long term appreciation in the value of their shares,” Mr D’Amato argued.
Second time lucky for a Myer-David Jones merger?
Nearly four years ago Myer proposed an all-share-based ‘merger of equals’ with David Jones.
That prompted Woolworths, which is not connected to the Australian supermarket chain, to make its successful $2 billion bid — but not before being held to ransom by Solomon Lew, who held a blocking stake.
Woolworths also owns Country Road and Mr Lew forced them to buy out his minority stake in the fashion chain at a premium price.
“I think it’s a little early to suggest that Solomon’s just taken a position on Myer when really his strategic positions are in products and services and brand names which really don’t align themselves with the Myer brand,” Mr D’Amato said.
Premier Investments has refused to comment on the trading in Myer shares.
In a statement to the stock exchange, Myer said it “had not had any communication in relation to yesterday’s (Monday’s) trading”.
But one thing that is becoming clearer is that Australia has too many department stores.
“Not only did David Jones produce challenging results in their latest half year, but we know that with Target and Kmart and the larger conglomerate warehouse-type department stores that unfortunately they’re struggling to get the modern Australian dollar,” Mr D’Amato said.
However it plays out, Mr Lew now has considerable say the future of what was one of the jewels of Australian retailing.
But history shows he does not necessarily need to buy the business to make a killing out of the power and leverage he now holds in Myer.
First published on ABC on March 30 2017.