South Africa's Woolworths set to buy Australia's David Jones for $2 billion

Wed Apr 9, 2014 3:13am EDT
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By Byron Kaye and Maggie Lu Yueyang

SYDNEY (Reuters) - South African retailer Woolworths Holdings Ltd (WHLJ.J: Quote) is set to buy Australia's second-largest department store David Jones DJS.AX for $2 billion, trumping a merger proposal from Australian rival Myer Holdings Ltd (MYR.AX: Quote) with a hefty premium.

The deal, the biggest for Woolworths to date, creates a leading southern hemisphere retailer that will benefit from greater scale and a common fashion seasonality. It also provides David Jones, which has seen profits decline for the past three years as competition from overseas players heats up, with more expertise in online offerings and private brands.

Resilient consumer spending, fuelled by a strong local currency and record low interest rates, has encouraged the likes of Sweden's Hennes & Mauritz (HMb.ST: Quote), and Japan's Fast Retailing (9983.T: Quote), the operator of the Uniqlo clothing chain, to set up shop in Australia.

"The view that we take as a business is that the department store isn't dead - mediocrity is dead," Woolworths Chief Executive Ian Moir said at a briefing in Sydney.

"In short, we're buying this business to build a bigger southern hemisphere brand."

Woolworths, an upmarket retailer, offered A$4.00 per share for David Jones. That represents a 25 percent premium to its closing price on Tuesday and a 40 percent premium to its close on January 30 when the Myer offer was made public.

"This makes a huge amount of strategic sense, they can afford to pay a high multiple," said Commonwealth Bank retail analyst Andrew Mclennan.

"There is going to be big synergies coming from this transaction."   Continued...

Pedestrians walk past a David Jones department store in central Melbourne September 24, 2009. REUTERS/Mick Tsikas