South Africa’s Woolworths announced a $4.00 per share bid for upmarket retailer David Jones Limited (ASX: DJS) yesterday, but it may well not be the last bid.
DJs chairman Gordon Cairns is reported to be open to other higher offers, and says the board is aware that offshore department store chains like the UK’s John Lewis and Marks & Spencer were looking at the Australian market. He also says a $21.5 million break fee and ‘no shop, no talk’ provisions would not prevent the board from considering other offers.
“It means we can’t go out and shop or talk to people but if someone comes in and says it’s worth $4.50 we have a fiduciary duty to review that offer,” he told the Australian Financial Review.
Analysts are divided over whether a higher bid will eventuate. Bridesmaid Myer Holdings Ltd (ASX: MYR) was left standing alone at the altar, after the Woolworths bid, but is reportedly unlikely to make a counter bid, given the price Woolworths is offering, and the fact the DJs board has recommended the Woolworths offer.
But the bid for DJs may make international department stores looking to take a step into Australia take a closer look. Private equity firms could also be in the mix, potentially offering a higher price per share and then selling off David Jones’ property holdings and leasing them back.
While the four properties are on the books valued at $460 million, DJs says the property is worth more than $600 million, while Macquarie analysts estimate the value at around $750 million. The value would likely come from developing apartment or office blocks on top of the existing stores.
The other potential bidder for DJs could be Solomon Lew’s Premier Investments Limited (ASX: PMV). Alternatively, Mr Lew may take a blocking stake in DJs, much as he has done with Country Road Limited (ASX: CTY). Woolworths owns just under 88% of Country Road, with Mr Lew’s private investment company holding 12%.
It’s hard to determine whether a higher bid will emerge or from where at this stage. But investors should be aware that betting on a higher bid coming would be highly risky.
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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