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David Jones reportedly plotting a takeover of Myer Holdings Ltd

Long-suffering shareholders of Myer Holdings Ltd (ASX: MYR) could have a reason to smile if recent takeover speculation proves accurate.

According to The Australian, the department store operator is being sized up by arch rival David Jones.

The report suggests that David Jones’ South African parent company, Woolworths, has engaged advisers and believes the two companies combined could benefit from pricing power with both suppliers and landlords.

Unsurprisingly, this news has led to the Myer share price climbing higher on Friday. At the time of writing the retailer’s shares are up 3% to 35.5 cents in early trade.

This has reduced Myer’s 12-month decline to approximately 71%.

What’s next?

It remains to be seen whether major shareholder Premier Investments Limited (ASX: PMV) would support such a move.

I suspect the retail conglomerate would not be overly supportive of a deal considering it would almost certainly mean a significant loss on its original investment. Premier Investments’ average price paid for its stake is believed to be approximately $1.15 per share.

Any deal would also have to be approved by the ACCC. While I don’t think this should be an issue as Myer and David Jones do not have a monopoly on any particular products, some market commentators think otherwise.

Should you invest?

I think a David Jones acquisition of Myer would make a lot of sense and could be the latter’s saving grace.

But whilst it is tempting to snap up shares in the hope of a takeover offer from David Jones or perhaps even a bidding war starting with Premier Investments, I would suggest investors keep their powder dry and focus on other options in the sector. After all, this is purely speculation at this stage and nothing is guaranteed.

For now, the shares of Lovisa Holdings Ltd (ASX: LOV) and Noni B Limited (ASX: NBL) would be great alternatives in my opinion. Both retailers are kicking goals at the moment and look set to continue doing so for the remainder of FY 2018.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Premier Investments Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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