By Ross Kelly
SYDNEY--For more than 160 years, David Jones Ltd. has outlasted
rivals by reacting quickly to the changing tastes of Australian
shoppers.
After this week's disclosure that it is on the shopping list of
its main competitor-- Myer Holdings Ltd.--the upmarket high-street
retailer is again under pressure to adapt to a changing world.
On Friday, Myer confirmed it had submitted an all-share takeover
offer for David Jones in October. David Jones said Thursday--when
it first disclosed the bid--that it had rejected the proposal
because it was too low.
In its own statement, Myer didn't say whether it planned to
return with a better offer, but it lamented David Jones's failure
to act on the proposal.
A merger would create a company with a market value of more than
three billion Australian dollars (US$2.64 billion) in possession of
about 100 department stores across the country. Myer said a deal
could have saved the two companies as much as A$85 million a year,
and went on to detail several more perceived benefits.
Like other Australian retailers, Myer and David Jones have both
been grappling with weak consumer confidence and competition from
overseas online retailers, who succeeded in luring Australian
shoppers while the nation's currency soared.
The arrival on the high-street of well-known foreign players
such as Gap Inc. and Zara in recent years has also squeezed their
margins. The competition is only going to intensify, with Sweden's
Hennes & Mauritz AB set to open its H&M-branded stores in
Australia later this year.
David Jones shares leapt as much as 6% in Sydney trading Friday
as investors priced in the potential for a sweeter Myer bid.
Still, some analysts such as Deutsche Bank's Michael Simotas,
based in Sydney, said a deal would struggle to get approval from
Australia's competition watchdog. Others suggested a competing
offer might emerge.
"This bid may focus the attention of some international players
on David Jones," said Anthony Vogel, an Sydney-based analyst at
BBY.
A marriage between Myer and David Jones would bring together two
of Australia's most recognized brands and its two biggest
department stores, selling everything from trendy clothes and
perfume to toasters and bedsheets.
Founded in 1838 by a Welsh immigrant, David Jones claims to be
the oldest department store in the world still trading under its
original name.
Myer was founded some years later, in 1900, by a Russian
immigrant, Sidney Myer. It has changed ownership several times in
recent years, and was listed on the Australian securities exchange
in November 2009 by its private-equity owners at the time.
Since then, both Myer and David Jones have delivered lackluster
earnings as a patchy global recovery, and a cooling Australian
mining boom, sapped consumer sentiment.
The share-price performance of both companies has also been
unimpressive. Myer shares are about 37% lower than their
initial-public-offer price, while David Jones has shed around 48%
over the same period.
Australia's central bank cut interest to a record-low 2.5% last
year, and that is starting to boost high-street spending, according
to recent government data. Meanwhile, David Jones has tried to take
on online challengers by beefing up marketing on its own
website.
David Jones also has valuable property assets in Sydney and
Melbourne that analysts suggest could be sold and leased back to
bolster the retailer's balance sheet. On Friday, Myer said a merger
would allow the companies to "maximize" the value of those assets,
without elaborating.
"The merged company would have operated Myer and David Jones as
separate, iconic department-store brands that would have been
better equipped to compete effectively in the changing retail
market," Myer said in its statement.
Write to Ross Kelly at ross.kelly@wsj.com
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