Fund managers thrash out Myer and David Jones merger, but retail expert says it’s unlikely

When rivals fall on hard times, joining forces can sometimes make perfect sense.

According to unnamed sources in The Australian Financial Review’s Street Talk column, bankers and fund managers are airing out a potential merger of Myers and David Jones, going so far as talking about the exact way it could be done.

For example, Myer could approach the board of David Jones offering 1.4 Myer shares for every David Jones share – at current prices a 30% premium on DJ’s share price – enough to interest shareholders into selling out of a stock that hasn’t risen in price over the past three years.

Any merger would, naturally, face stiff scrutiny from the ACCC. But with the rumoured entry of British department store Marks & Spencer, the latest in a long line of foreign retailers to head to our shores, Myer and David Jones aren’t the duopoly they once were.

It’s not the first time talk of a merger between the two rivals has been floated.

This time last year, analysts at investment bank Morgan Stanley thrashed out the plausibility of the two giants merging in a report of audacious predictions for 2013.

“Department stores now compete more with others [than with each other],” wrote Morgan Stanley retail analyst Tom Kierath. By merging, the two stores could save some of the money that goes into competing with each other, and more efficiently focus on planning for the future.

Kierath and his team even did the sums. They reckon the two stores could save $91 million, or 26% of their net profits, in synergies, largely through a lower management headcount and “more rational discounting”.

The Morgan Stanley analysts acknowledged they hadn’t heard of any merger talks between the two, and given the historical rivalry and potential regulatory hurdles, a merger is unlikely. But with David Jones down a CEO after chief Paul Zahra announced his retirement in October, some people reportedly think now could be the perfect time.

But Retail Doctor Group managing director Brian Walker, one of Australia’s leading experts on department stores, says such talk is likely little more than interesting speculation.

“I’ve heard such proposals anecdotally form time to time. But I think the odds are pretty slim.”

The future of our two department stores is on the agenda, given their slow incremental growth in recent years, he says.

“There’s an argument that we have too many department store outlets in our country. Between Myer and David Jones, there are more than 100 department stores. And with Marks & Spencer looking at coming into Sydney, and all foreign department stores having online offerings now, I think we’ll definitely see a rationalisation of the department store model. There’ll either be smaller sites, or fewer sites.

“These sorts of conditions pave the way for speculation. I’m sure they’re looking at all sorts of options.”

Myer spokesperson Amanda Buckley told SmartCompany the department store “never comments on market rumours and speculation”.


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