David Jones says maybe to a new Myer Holdings bid

Department store retailer David Jones (ASX: DJS) has changed its mind over a potential bid for the company from rival Myer Holdings (ASX: MYR).

According to the Australian Financial Review (AFR), David Jones chairman Peter Mason has not ruled out a merger, and would be willing to engage with Myer, if it was in the best interests of shareholders.

It seems some substantial shareholders in David Jones are not at all happy that Myer’s initial offer in October 2013 was dismissed out-of-hand by the David Jones board. The AFR reports Mr Mason will be meeting with key shareholders this week, with several fund managers questioning how David Jones made its decision to reject the offer within 24 hours, and whether the board adequately considered the offer.

Mr Mason says Myer haven’t indicated they are willing to discuss the merger, and didn’t try to engage after the initial rejection. At the time, Myer was offer 1.06 Myer shares for each David Jones share – or the equivalent of $2.62 when David Jones shares were trading at $2.71, according to the AFR. The paper also reports that Myer believe the offer they made for David Jones was compelling then, and ‘still think it’s a compelling proposal.’

It seems unlikely that Myer will want to pay much more, and will also be hesitant to make a hostile takeover. Myer would want to retain as much goodwill between the two companies, should a formal merger go ahead, and a friendly merger would also likely see the offer price being lower.

‘Insider trading too difficult to prove’

At the same time, the corporate regulator, the Australian Securities and Investment Commission’s (ASIC) brushed off criticism after it decided to close its case surrounding share trading by David Jones directors Steve Vamos and Leigh Clapham.

Vamos and Clapham purchased David Jones shares a day after the company received the takeover bid and before it was rejected, and two days before the retailer released a better-than-expected quarterly sales result, which saw David Jones shares soar 15%.

Senior commissioner John Price has told the AFR that “Proving insider trading offences is pretty difficult.”

But ASIC may well be feeling the heat soon, with Adelaide Now reporting that a Senate committee will be taking a closer look at ASIC’s decision. The newspaper says Nationals Senator John Williams, who has questioned the competence of the regulator in the past, says they will be seeking an explanation as to why ASIC declined to take the share trading matter further.

Foolish takeaway

Some commentators have called for David Jones chairman Peter Mason and the whole board to resign after this latest issue. While the share trading has so far been deemed legal, at the least, it seems wholly unethical for board members to be trading in shares given the situation the company was in at the time of the trades. The company could also find itself on the end of a shareholder class action – something that could cost it millions, as well as further damage its already tarnished reputation.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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