By Dow Jones Business News,
January 31, 2014, 03:16:00 AM EDT
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
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'sHennes & 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
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 firstname.lastname@example.org
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
Copyright (c) 2014 Dow Jones & Company, Inc.