Australian Retailer Myer Laments Merger Snub

By Dow Jones Business News, 
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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'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 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

Subscribe to WSJ: http://online.wsj.com?mod=djnwires


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