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David Jones Board Approves Woolworths Bid

The South African retailer's offer values David Jones at 2.15 billion Australian dollars, or about $2 billion.

SYDNEY — Australian retailer David Jones said Wednesday its board recommends a 4 Australian dollar, or $3.73, per share takeover offer from South African retail group Woolworths. That price values David Jones at 2.15 billion Australian dollars, or about $2 billion.

This story first appeared in the April 10, 2014 issue of WWD.  Subscribe Today.

“David Jones is an iconic brand with a long and justifiably proud history. 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. It represents a substantial earnings multiple,” said David Jones chairman Gordon Cairns.

Shares in David Jones Ltd. surged 22.5 percent on Wednesday as investors digested the news. They finished the day on the Sydney exchange at 3.91 Australian dollars, or $3.64.

The announcement blindsided the market, following three months of speculation over the fate of David Jones. Rival Australian department store chain Myer made an unsolicited 3.2 billion Australian dollar ($3 billion) share swap merger proposal for David Jones. That deal was made public in January. Last month, David Jones announced it had appointed three investing banking and management consultants to assess the proposal.

Woolworths’ 4 Australian dollars share-price offer represents a 25.4 percent premium to David Jones’ closing price on April 8 and a 39.4 percent premium on the price of David Jones shares on Jan. 30.

Shareholders will have the opportunity to vote on the Woolworths proposal in late June.

Citigroup analyst Craig Woolford said he estimated the Woolworths deal could achieve 50 million Australian dollars, or $47 million, in synergies.

“Woolworths has a significant own-label range in both food and nonfood. The company also owns 88 percent of [Australian fashion chain] Country Road. We expect the most significant synergies are in sourcing, adding private label and improved merchandising. Woolworths South Africa — and Country Road — also operate a strong loyalty program and have experience in financial services,” Woolford said.

“The key remaining question is whether this proposal will result in other global department stores taking a closer look at David Jones. The synergies for Woolworths are boosted by its Southern Hemisphere connection, but we could not rule out another bid,” Woolford said.

However, IG Markets analyst Evan Lucas believes another deal is unlikely.

“Looking at the share trading this morning, it would suggest the market thinks this deal is probably fair value and you’re unlikely to see another deal coming in over the top,” said Lucas. “If they thought there was another deal, it would be 4.10 to 4.15 Australian dollars ($3.82 to 3.87), but the fact that it’s under suggests the market believes this the right deal and it’s fairly valued,” Lucas said.