Finance Finance News DJ’s takeover in the bag … almost

DJ’s takeover in the bag … almost

David Jones
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The Scotsman in charge of the South African company aiming to buy David Jones wanted to reassure Australians that they’re not losing yet another local icon to overseas hands.

“Don’t be despondent, we’re not taking David Jones anywhere,” Ian Moir, chief executive of Woolworths Holdings said.

“We’ve just paid $2.1 billion for it – we love it to death. We’ll be looking after it like it’s our own.”

If shareholders of both companies approve the deal, David Jones will be foreign-owned by July, in the process making Woolworths one of the world’s 10 biggest department store operators.

In name at least, DJs will not change but Mr Moir has signalled there will be a big increase in upmarket private label clothing, possibly sourced from Woolworths’ own facilities, including Chinese factories, where it already makes products for its South African stores.

Megan Gale
DJs ambassador Megan Gale. Photo: Getty

Close to a done deal

The surprise takeover has passed the first hurdle, with the Woolworth SA’s offer receiving the approval of the David Jones board.

Morningstar analyst Tim Montague-Jones said the bid came out of the blue, with many onlookers still talking about the mooted buyout by rival Australian retailer Myer.

“When I read it, I had to do a double take. I was completely surprised, bowled over,” Mr Montague-Jones said.

“I would never have thought, in my wildest dreams, that the South African Woolworths would come over here and make such a bold bid at such a high premium.

“It was something I didn’t see coming, to be honest, and I would say that’s probably the same for most analysts in the area.”

Woolworths offered $4 a share for the upmarket retailer, a 25 per cent premium on the price that David Jones shares closed at on Tuesday. But the local market played a vigorous game of catch up today, with David Jones shares closing 22.6 per cent higher to $3.91.

Ian Moir
Woolworths SA CEO Ian Moir. Photo: AAP

Local knowledge

Although the bid came out of left field, the brains behind have a deep understanding of Australian retail. 

Ian Moir, the CEO of Woolworths SA, is the former chief executive of Country Road, and Woolworths holds big investments in Country Road, Mimco, Witchery and Trenery.

“We’ve been looking at DJs for a long time, we’ve been eyeing them off for more than a year. We want to build one of the biggest retailers in the southern hemisphere,” said Mr Moir.

“The view that we take as a business is that the department store isn’t dead. What is alive is a great department that can give great product and great service.”

For Morningstar’s Tim Montague-Jones, the $4 a share offer price was a “knockout punch”.

“[Woolworths are] making what we would say is quite a reasonable price-to-earnings premium for the business, which is 20 times next year’s earnings, which is quite a high multiple.”

IG analyst Evan Lucas said Woolworths SA took over Country Road “four or five years ago” and has done well with the brand.

“It’s a very, very, very competitive market, but David Jones is a 176 year old company, well-established, it just needs some tweaking and Woollies definitely has the track record that they know how to do that.”

Impact on consumers

Mr Lucas thinks prices at the David Jones checkout are “unlikely” to change if the takeover bid is successful. The company will instead look to “streamline” its business under Woolworths control, Mr Lucas said.

“Prices will probably remain where they are. What they’ll try and do is reduce the other side, which is the cost of doing business,” he said. “Touch wood, you shouldn’t see a change.”

Until today, Myer was eyeing what it called a ‘merger of equals’ with David Jones.

We’ve been looking at DJs for a long time, we’ve been eyeing them off for more than a year

The Woolworth’s bid faces at least two more hurdles: the approval of David Jones shareholders and the tick of approval from the government’s Foreign Investment Review Board (FIRB), Mr Montague-Jones said.

IBISWorld’s Caroline Finch said the FIRB did not block the acquisition of Myer by international investment firm TPG in 2009, so she foresees that this takeover will be unproblematic. But she cautions that nothing is yet certain.

“It still has to go through the approval process. Similar transactions has been successful in the past, but we can’t speak for regulators.

“As with any merger, you’d never call it until it’s over, and with at least two bidders in the race, it always makes for a much more exciting race,” Ms Finch said.

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