Should Myer buy David Jones Limited?

Some shareholders see benefits in combining the two retailers.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The recent news that department store Myer Holdings Ltd (ASX: MYR) made an approach to rival David Jones Limited (ASX: DJS) regarding a possible merger of equals has cast the two retailers into the headlights of investors.

While investors will be weighing up the scenarios under which they could profit, the news has also opened the door for shareholders to now enter the fray (and rightly so) and air their opinions on what should happen next.

One of those shareholders is fund manager Allan Gray which has a 5.3% holding in David Jones. Dr Simon Marais, portfolio manager at Allan Gray, has encouraged Myer to continue pushing for an outcome – potentially by launching a takeover. His argument centres on the structural issues facing the department store sector and the need for consolidation.

Recent History

In the past 12 months David Jones has certainly been the better investment. David Jones’ share price has gained 21.4%, while Myer’s has fallen 3.6%. In contrast the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is up 3.9%.

Extending the time frame out to five years however and David Jones’ outperformance vanishes. Over the past five years the stock price is down 45.6%, Myer’s is down 36%, while the S&P/ASX 200 Index is up 10.4%.

A review of each retailer’s results explains these falls. Over the past five years, David Jones’ total sales, sales per square metre, profit after tax, earnings per share and dividends are all significantly lower. Similarly Myer’s sales, profits, earnings per share and dividends are all lower since its initial public offering in late 2009.

Foolish takeaway

With potential synergies – reportedly to the value of $85 million – available from combining Australia’s two leading department stores, a merger would appear to make inherent sense. However, whether Myer has the balance sheet capacity, or its shareholders the stomach for accepting significant dilution for a takeover is another matter altogether. This story may have a way to run yet.

Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »