Myer needs to bring more money to the table

EVAN SCHWARTEN
Last updated 10:00 21/02/2014

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David Jones might be more receptive to a merger proposal offer from Myer this time around, but its department store rival will likely have to increase its offer if it wants to seal the deal, analysts say.

Myer on Thursday resubmitted its A$3 billion ($3.4 billion) merger proposal to David Jones, less than three months after a previous approach was rebuffed.

The company also announced it had reappointed chief executive Bernie Brookes and intended to put him forward as a contender to lead a unified department store giant.

The deal on the table is the same: David Jones shareholders would receive 1.06 Myer shares for each share they currently hold, with no premium offered.

But analysts say things are different this time around because the merger discussions are being carried out in public.

When the David Jones board rejected Myer's approach in November it did so without alerting its shareholders, but media speculation in January forced both companies to inform the market of the offer.

IG market analyst Evan Lucas said the market had generally reacted positively to the proposal, which may have emboldened Myer to resubmit the offer and make David Jones more willing to negotiate.

"It's a good first step and obviously there is an appetite from the market for this to happen," he said.

But Options XPress market analyst Ben Le Brun said Myer would have to lift its offer if it wanted the deal to go ahead.

"Myer is going to have to come to the table with something compelling to get DJs to come to the party," he said.

The David Jones board previously argued the deal didn't represent sufficient value to shareholders.

In his letter to David Jones, Myer chairman Paul McClintock indicated the company might be open to altering its offer.

"Clearly if our joint review throws up evidence that one party is contributing more than its share to the value creation, then that evidence could be reflected in the final terms," he said.

Invast chief market analyst Peter Esho put the chances of a merger at 50/50, saying it would be hard for David Jones to oppose the proposal.

"It's always hard to defend a takeover or a merger," he said.

But all three analysts said the proposal would face a number of other hurdles, including approval from the Australian Competition and Consumer Commission and a tie up may not be in the companies' best interests.

"I think the last thing Myer and David Jones should be doing is merging," Esho said.

"They are different businesses and they should be different businesses."

Myer says its proposal would keep the two department store brands intact but would yield more than $900 million in cost savings.

David Jones shares have lifted 6.5 Australian cents (7 cents), or two per cent, to A$3.265 ($3.54), while Myer was up 12 cents to $2.58.

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