Woolworths South Africa to scoop up David Jones in $2.15 billion takeover

Department store David Jones has recommended this morning its shareholders vote in favour of a $2.15 billion takeover bid by Woolworths South Africa.

The deal sees Woolworths SA offer $4 cash per share for all of David Jones’s shares. Current shareholders as of April 10 will also receive an interim dividend fully franked of $0.10 per share.

The proposed acquisition comes as recent attention has focused on an attempt by rival department store Myer to takeover David Jones.

Myer’s initial offer was rejected by David Jones because the premium was said to be inadequate.

Following the offer from Woolworths SA, Myer announced it has withdrawn its proposed “merger of equals”.

“Myer remains fully committed to continuing to progress our well-established five-point plan with a number of new initiatives to drive sales and profitability while continuing to invest in the growth areas of the business,” Myer chief executive Bernie Brookes said in a statement.

David Jones said in a statement it had entered into a scheme implementation deed with Woolworths SA.

The $4 cash per share offer is at a 25.4% premium to the closing price of $3.19 for David Jones shares yesterday.

The department store’s shares are already up 23.20% in early trade to $3.93.

Under Australia’s foreign investment rules the deal is subject to approval by the Treasurer and Woolworths SA will also require approval from the South African Reserve Bank. Shareholders will have the chance to vote on the deal in mid-June 2014.

David Jones chairman Gordon Cairns said in a statement the proposal is “compelling” and represents a “significant premium” on its intrinsic value and broker valuations.

“In reaching our conclusion that the proposal is in the best interests of the shareholders, customers and employees, the board has considered a number of alternatives, including standalone value creation opportunities, realising the value of the freehold properties owned by David Jones, or pursuing a merger with Myer in accordance with the proposed terms,” Cairns says.

“Upon assessing the alternatives before it, the board has unanimously concluded that the Woolworths offer is a compelling option which realises value for our shareholders.”

Retail Oasis director Nerida Jenkins told SmartCompany David Jones shares haven’t traded at $4 since 2011.

“I imagine the majority of the board see this proposal as a good return on investment for shareholders,” she says.

“David Jones has faced struggles recently in the retail environment, along with instability at a board level. On the other hand Woolworths SA is a well organised business and the chairman has had many successes, particularly since Country Road and Witchery were acquired.”

Jenkins says Country Road and Witchery have gone “from strength to strength”, demonstrating why it’s an attractive proposition for David Jones.

“Not only is the offer a premium on value, but the acquisition would also bring with it a wealth of retail experience,” she says.

“David Jones is a legacy business, but with heritage comes a lot of old ways of doing things and Zahra is trying to steer the ship into a new age.”

Jenkins says Woolworths SA works on a department store format, but is “heavily biased toward its own labels”.

“It has a limited and selected range of brands sitting on top of its own labels. You could surmise that you could see more own label brands and acquisitions at David Jones if the deal goes ahead,” she says.

“There’s no doubt Woolworths would come in and undertake a full order of business… but I imagine key stakeholders like Paul Zahra will be essential to the plan moving forward.”

Retail Doctor Group founder Brian Walker told SmartCompany the deal offers good value for shareholders.

“The fundamental role of any board is to drive up share price and essentially that’s what they’re doing in this matter,” he says.

“Woolworths SA is a multi-billion dollar business, but how active they will be if they acquire David Jones remains to be seen. However this is a vote of confidence for David Jones’s strategy, because they must be comfortable with its position and see a strong future for the business.”