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Takeover for DJs or Myer coming?

Struggling department store retailers, Myer Holdings (ASX: MYR) and David Jones (ASX: DJS) could end up the target of a takeover offer.

Premier Investments (ASX: PMV) has refused to rule out a takeover bid for either company according to the Australian Financial Review.

Following a string of high profile appointments, including Judy Coomber, who was second-in-charge at Myer, speculation is rising that with a team of department store experts and $300 million of cash in the bank, Premier could be looking at a takeover of either company.

Premier’s retail chief, Mark McInnes has told the Australian Financial Review that he wouldn’t rule anything out, but he also wouldn’t rule it in either. Mr McInnes used to run David Jones.

However, that may just be idle speculation, as Premier has plans to aggressively rollout its Smiggle retail stores in Asia from its current 12 to 260, including 200 in Japan alone. That will require significant capital – $300 million in cash might do the job.

Speaking at the company’s AGM yesterday, both Mr McInnes and chairman, Solomon Lew took the opportunity to launch an attack on the government’s reluctance to lower the $1,000 GST threshold on offshore purchases. Mr Lew suggested that up to 30,000 jobs could be saved over the next three years if the government levelled the playing field on the GST threshold, so that Australian retailers can play too. Mr McInnes said that up to 75% of online fashion purchases went to overseas websites.

Still, Premier can’t be too unhappy with its own online sales results, which jumped 59% over the past 12 months. That result is similar to the 70% growth high-end fashion retailer, OrotonGroup Limited (ASX: ORL) has achieved, with its online shopping site generating 10% of total sales and now the group’s biggest store.

Foolish takeaway

Premier is more than likely to keep plugging away at its own businesses, than make a move on Myer or DJs. Both companies are larger by market cap than Premier, so any takeover would involve a large capital raising, a big slice of debt or a combination of both. With the retail sector struggling, Premier may not want to put itself in a position where any further downturn could put it at the mercy of lenders. I’m leaning towards no takeover just yet.

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Motley Fool writer/analyst Mike King owns shares in OrotonGroup and David Jones. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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