* Offer is for A$4.00 per share, 25 pct premium to last
* Beats nil-premium merger proposal from Australia's Myer
* Myer withdraws merger offer
(Adds comments from Woolworths CEO and Morningstar analyst)
By Byron Kaye and Maggie Lu Yueyang
SYDNEY, April 9 South African retailer
Woolworths Holdings Ltd is set to buy Australia's
second-largest department store David Jones for $2
billion, trumping a merger proposal from Australian rival Myer
Holdings Ltd with a hefty premium.
The deal, the biggest for Woolworths to date, creates a
leading southern hemisphere retailer that will benefit from
greater scale and a common fashion seasonality. It also provides
David Jones, which has seen profits decline for the past three
years as competition from overseas players heats up, with more
expertise in online offerings and private brands.
Resilient consumer spending, fuelled by a strong local
currency and record low interest rates, has encouraged the likes
of Sweden's Hennes & Mauritz, and Japan's Fast
Retailing, the operator of the Uniqlo clothing chain,
to set up shop in Australia.
"The view that we take as a business is that the department
store isn't dead - mediocrity is dead," Woolworths Chief
Executive Ian Moir said at a briefing in Sydney.
"In short, we're buying this business to build a bigger
southern hemisphere brand."
Woolworths, an upmarket retailer, offered A$4.00 per share
for David Jones. That represents a 25 percent premium to its
closing price on Tuesday and a 40 percent premium to its close
on Jan. 30 when the Myer offer was made public.
"This makes a huge amount of strategic sense, they can
afford to pay a high multiple," said Commonwealth Bank retail
analyst Andrew Mclennan.
"There is going to be big synergies coming from this
Woolworths' profits have grown 20 percent annually in the
past five years on investments in product development, tighter
inventory management and through onlines sales, and the company
plans to bring this expertise to David Jones, Moir said.
He estimated that the company could add at least A$130
million annually to David Jones' bottom line within five years.
David Jones posted an annual profit of A$95.2 million in the
last financial year.
Its shares jumped to match the bid price but later pared
gains slightly to end the day 23 percent higher at A$3.91.
ALL ABOUT SCALE
The offer prompted Myer, Australia's biggest department
store, to withdraw its nil-premium all-stock proposal that
valued David Jones at A$1.7 billion as of Tuesday's closing
price, and which it had touted as a merger of equals.
In 2013, in U.S. dollars, Woolworths revenue was $3.6
billion and David Jones was $1.7 billion, putting their combined
sales above Myer's $2.9 billion, although still far below rivals
like Marks & Spencer which garnered $15.3 billion.
"What we are seeing is like a global consolidation of
retail," said Morningstar analyst Tim Montague-Jones.
"That's increasingly seeing stronger retail models expand
offshore and take market share from weaker ones. It's all about
scale," he said, noting Myer would be left in a much weaker
Shares in Myer ended 3.9 percent higher, however, on relief
that it would not be overstretching in seeking a deal with David
Analysts expect to see more competition in the Australian
market as more players seek a slice of the pie. Marks & Spencer
may also be planning to set up shop, local media has reported.
Australian retail sales rose 0.2 percent in February to a
record A$22.97 billion, following a 1.2 percent climb in
January. It was the 10th straight month of increases, the
longest such stretch since 2006/07.
The retail sector accounts for 17 percent of Australia's
A$1.5 trillion in annual gross domestic product (GDP) and is the
second-biggest employer, providing 10 percent of all jobs.
The deal also came on the same day that a measure of
Australian consumer sentiment rose for the first time in five
months in April as households became more optimistic on the
near-term outlook for both the economy and their own finances.
Woolworths Holdings, which has no relationship with
Australian supermarket chain Woolworths Ltd, already
has experience in the Australian market, owning 88 percent of
upmarket clothing retailer Country Road Ltd as well as
another clothing chain Witchery.
It said it would finance the deal with debt, cash and equity
fund raising. It does not plan to reduce jobs at David Jones
after the takeover, it added.
David Jones was advised by Gresham Advisory Partners Ltd,
Macquarie Capital and law firm Herbert Smith Freehills.
Woolworths was advised by Rothschild and Standard Bank.
($1 = 1.0712 Australian Dollars)
(Additional reporting by Lincoln Feast; Editing by Edwina