Premier, Myer Deal Could Save A$55 Million Annually

While the mega merger of Myer and Premier Investment’s Apparel Brands was announced earlier this week, it could result in tens of millions in annual savings for the alliance.

Brokers have suggested that the merger could extract A$55 million a year in savings, and land Myer with a coveted A$1 billion-plus valuation, reported the Australian Financial Review.

Under the proposed deal, Myer would acquire Apparel Brands’ Just Jeans, Jay Jays, Dotti, Portmans and Jacqui E from Premier Investment in exchange for new Myer shares.

Solomon Lew, the chairman of Premier Investments, has a 31 per cent stake in Myer and has for years been inching towards acquiring a controlling stake by gradually increasing his share of the upscale department store chain.

The latest deal will undoubtedly be a win for Lew. He would join the Myer board, where Premier already holds two seats.

The enlarged group will have about A$4 billion in annual sales and more than A$200 million in earnings.

The deal will likely delay the spin-off of Lew’s larger Smiggle and Peter Alexander brands.

Former Qantas executive Olivia Wirth was appointed Myer executive chairwoman recently

Premier is one of Australia’s largest retail operators with a portfolio of 1,100 brick-and-mortar stores.

“Myer shareholders will be significantly diluted in the transaction but the combined entity will have double the earnings and have the opportunity of potential synergies and the chance to reinvigorate growth,” said MST Marquee analyst Craig Woolford, according to the AFR.

Premier has attempted to cut costs over the past 12 months in its retail brands which have been hit by slowing sales. Woolford forecasts full-year earnings before interest and tax of A$337 million, which would be below market expectations of A$343 million.

Ben Gilbert, head of Australian research at Jarden, estimated that Premier shareholders could end up owning about 70 per cent of Myer. Bringing Apparel Brands into Myers stores would, he notes, provide the opportunity to cut store space more quickly, while also reducing overheads including rent.

A combined larger group could also leverage the Myer One loyalty scheme. While Premier doesn’t have one in place, it’s worth remembering that Myer’s new executive chair, Olivia Wirth, was most recently the head of loyalty at Qantas and could bring her experience in that space to deliver a new loyalty programme too.

Solomon Lew

Gilbert noted that a successful combination, with a A$700 million valuation for Premier’s Apparel Brands business, implies a valuation of greater than A$40 a share for Premier.

Unified Capital analysts have also estimated that Premier could unlock about A$40 million of synergies helped by a smaller footprint of stores and higher Myer gross margins, which it says would boost earnings per share by 30 per cent. This would see Myer emerge with a $1 billion-plus market cap.

Myer’s shares have continued to rally since the news of the proposed deal was made public earlier this week. Compared to its Friday closing, its shares are already up more than 32 per cent to A$0.84 as of 1.20pm AEST on June 26.