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Will Myer Holdings Ltd trump $4.00 bid for David Jones Limited?

Upmarket department store retailer David Jones Limited (ASX: DJS) has received a takeover bid from South Africa’s Woolworths, valuing the company at more than $2.1 billion dollars.

The bid, at $4.00 per share is 25% above the last closing price of $3.19, and a multiple of 20.8 times last year’s earnings per share. With such a high price being offered, it’s no wonder that the David Jones board have recommended the deal. Shareholders who owned shares before 10 April will also be entitled to the interim dividend of 10 cents per share.

Woolworths South Africa is not related to Australia’s supermarket retailer Woolworths Limited (ASX: WOW), and also owns around 90% of Country Road Limited (ASX: CTY).

David Jones chairman Gordon Cairns said, “This is a compelling proposal which represents a significant premium to not only our intrinsic value but also to broker valuations and to recent share prices.”

CEO Paul Zahra was similarly enthusiastic about the deal, saying the proposal was an endorsement of the company’s Future Strategic Direction Plan and the management team.

The bid still has a number of hurdles to meet, including shareholder and Federal Treasurer approvals. An independent expert has also been appointed to advise if the deal is fair and reasonable. Woolworths also has to obtain approval from the South African Reserve Bank.

The big question current David Jones shareholders will be asking is, “will Myer Holdings Ltd (ASX: MYR) trump the Woolworths bid?”

As you are probably aware, Myer had made an unsolicited bid for David Jones late last year, but was knocked back by the DJs board at the time. But recently both companies had hired advisers and were in discussions about a potential tie up. David Jones was pushing Myer to make a higher bid, but Myer appears to have missed out the opportunity now, and will face a much larger competitor, if the Woolworths bid goes through.

Foolish takeaway

Myer is reported to be making a statement later this morning regarding the bid by Woolworths. It seems unlikely that Myer will make a revised, higher bid, given the price premium and the fact David Jones’ board have recommended the Woolworths deal. But that may be unlikely to sway some investors, and David Jones’ share price may well trade higher than $4.00, on the chance another bid could come out of left field, from the likes of private equity.

 

 

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Motley Fool writer/analyst Mike King owns shares in Australia's Woolworths. You can follow Mike on Twitter @TMFKinga

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