David Jones has recommended its shareholders accept a $2.15 billion takeover offer from South African retailer Woolworths.
Woolworths, which is unrelated to the Australian supermarket giant of the same name, has put forward a $4 per share takeover offer, 25 per cent above David Jones’ closing share price on Tuesday.
David Jones has entered into a scheme of implementation deed with the South African company, and shareholders are likely to vote on the deal in June.
“This is a compelling proposal which represents a significant premium to not only our intrinsic value but also to broker valuations and to recent share prices,” chairman Gordon Cairns said.
The offer trumps a merger proposal offered by rival Myer, which would have seen investors swap their David Jones’ shares for stock in the merged company.
The Woolworths takeover deal, which is subject to approval from shareholders and Treasurer Joe Hockey, comes after signs David Jones is turning around its performance after years of poor sales results.
The company recently announced a 3.8 per cent lift in its half year sales, though its net profit fell slightly due to reduced earnings from its financial services division, which includes its store card and David Jones branded credit cards.
Woolworths, which operates a chain of retail stores in South Africa and owns Australian clothing label Country Road, says the deal would make it one of the 10 largest department store operators in the world.
“This transaction provides us with the scale and opportunity to deliver significant benefits to our shareholders, and our customers in South Africa and Australia,” Woolworths chief executive Ian Moir said.
Woolworths would look to strengthen David Jones to allow it to better compete in a changing retail landscape, he said. “We will work with the David Jones management team to deliver the sound strategies they have already set in place,” Mr Moir said.
“Woolworths will bring additional capabilities, financial strength and significant scale to accelerate these strategies.”
Responding to today’s announcement, department store Myer said it had given up its hope of a merger with David Jones after being trumped.
Myer had proposed a “merger of equals” that would have seen David Jones investors swap their shares for stock in the merged entity.
“While we believe in the strategic merits of our proposal and the potential value accretion for both sets of shareholders, we have always maintained a disciplined approach to valuation, and as a consequence we will advise David Jones today of the withdrawal of our proposed merger of equals,” the company said in a statement.
Myer chief executive Bernie Brookes said the company would instead focus on boosting its own profitability.
“Myer remains fully committed to continuing to progress our well-established five-point plan with a number of new initiatives to drive sales and profitability while continuing to invest in the growth areas of the business,” he said.
Myer shares had lifted 13 cents, or more than five per cent, to $2.43 at 1130 AEST.
Corporate profile of the South African Woolworths
- Operates department stores in South Africa
- Owns Country Road, which has operations in Australia and Asia
- Also owns the Mimco, Witchery and Trenery brands
- Valued at $5.6 billion on the Johannesburg Stock Exchange
- First store opened by Max Sonnenberg in Cape Town in 1931
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