The David Jones farce: What the company should have done

The withdrawal of a $1.65 billion takeover bid for national retailer, David Jones, has bought to a close one of the most bizarre chapters in the company’s 174-year history.

In our step-by-step analysis of the bid – made by a little-known private equity company, EB Private Equity – we unravel the complexities facing David Jones chair Bob Savage, his board and management.

The takeover bid

On May 28, the David Jones board received an email, dated May 22, with an unconditional but incomplete bid for the company. According to The Australian Financial Review, David Jones chairman Bob Savage thought the deal “didn’t feel right”. He emailed the bidder asking for more information. It would be a month before he received any response.

The bidder was John Edgar, representing EB Private Equity, a private equity group that claims to have a focus on property.

The David Jones board was faced with three possibilities: saying nothing until further details were forthcoming; making an announcement; or going into a trading halt.

Usually, you would expect the board to quickly make an announcement about a bid, says the chief executive of Chartered Secretaries Australia, Tim Sheehy.

“My hunch is that they hesitated because they had doubts about the legitimacy of the bid,” he says. “In a perfect world where a bid came through a well-known, recognised investment bank, and was legitimate, they would have to disclose relatively quickly. This one didn’t seem bona fide from the start, and they set about investigating.”

The David Jones board was under no obligation to reveal the bid by EB Private Equity, says professor Ian Ramsay, director of the centre for corporate law and securities regulation at Melbourne University. Ramsay was responsible for the review that led to changes in corporate law in 2004 in the wake of corporate collapses such as HIH insurance in 2001. “The ASX requires under listing rules disclosure of ‘material’ information [that will affect the share price], but there is a carve out … and that includes an incomplete proposal,” he says.

On June 28, a day before David Jones finally revealed the offer, EB Private Equity responded to Savage’s request for more information. The email contained few new details about the bidder, but did update the offer to $1.65 billion – a 40% premium on the company’s then market value.

The disclosure

On Friday, David Jones was forced to show its hand.

A blogger in Newcastle, England, began calling media outlets about the bid. Many of them would have been sceptical. The blog was only recently established and quite obscure.

It was eventually picked up by a reporter at Bloomberg, who called David Jones to ask whether there was a bid.

Does this mean that Australian listed companies now have to consider their information is public if it is being written about by an obscure blogger in another country?

Ramsay says that is not the precedent set by the events. It was the fact that the blogger contacted mainstream media to promulgate the story, “It was still incomplete, but at that stage David Jones is concerned that the information has leaked into the marketplace,” Ramsay says.

At this point, Ramsay says, the David Jones board rightly issued its first statement; David Jones, being well advised, did not want to be accused of sitting on material information.

The first statement

In its brief first statement to the market, the company said the approach was made by a non-incorporated entity in the United Kingdom about which ”no usual public information is available”.

It read: “The directors do not believe they currently have relevant information to enable them to qualify or value the approach but should this change will advise the market accordingly,” David Jones said in its statement. ”In the meantime, the directors recommend that shareholders treat related market comment cautiously.”

At the time, David Jones did not release the name of the bidder or the amount of the bid. The retailer’s shares jumped 20%.