Shares in department store retailer David Jones (ASX: DJS) have surged more than 4% in early trading, on speculation of a merger with competitor Myer Holdings (ASX: MYR).
While David Jones has already knocked back the deal, it seems investors think it could be revived. Certainly some commentators have suggested it would be possible and 'makes sense'.
Simon Marais, a director and portfolio manager of Allan Gray and one of DJ's largest shareholders has reportedly told the Australian Financial Review (AFR) that the deal 'makes sense', and is reported to have called on the DJ's board to act in the interests of shareholders.
Myer made the approach to DJ's in October last year, and in an amazing turn of events, has even published the letter (PDF) it sent to DJ's chairman, Peter Mason.
David Jones declined Myer's invitation on a number of grounds including, substantial commercial, market, business and regulatory risks (including the ACCC review process). The company also said it would divert company resources over a lengthy period with an uncertain outcome, and potential to de-value the David Jones business.
On that basis alone it appears David Jones' board has no intention of entertaining a merger bid with Myer. A commentator on Sky Business also noted that directors usually always reject the first takeover bid, because they most likely want to hang onto their well-paid and prestigious jobs. But it may also have been rejected in the hope of a better offer coming through.
In my view, gaining approval from the Australian Competition and Consumer Commission (ACCC) would be extremely difficult, with the ACCC reportedly taking a dim view of the merger in early talks with Myer. Without ACCC approval – the deal is dead in the water.
Thus it appears very unlikely that a merger will take place between Myer and David Jones.
Foolish takeaway
Myer's proposal calls to keep both the Myer and David Jones brands, but consumers have been turning away from both department stores since the advent of shopping malls. That hasn't been helped by both retailers being slow to innovate and offer multiple channels, including mobile and online for shoppers.
Foolish investors may want to instead take a closer look at other retailers, including Super Retail Group (ASX: SUL) or The Reject Shop (ASX: TRS).
