Woolies doubling up down under?


Woolies doubling up down under?

Published Date: 2018-04-09 | Source: Stephen Gunnion | Author: Stephen Gunnion | Comments

Woolies doubling up down under?

Australian media are speculating that Woolworths may make an offer for department store Myer, David Jones's main rival in Australia

Woolworths may be considering another big acquisition in Australia, following its A$2.1 billion purchase of department store chain David Jones in 2014.

Shares in Myer jumped 7.2% on Friday, with the daily newspaper, The Australian, reporting that David Jones was considering buying its main rival. The Australian said Woolworths had appointed advisers to look into a possible deal.

Last month, Myer reported a first-half loss and suspended its dividend, while David Jones itself has been struggling due to the cyclical downturn and structural changes that Woolworths says has impacted the performance of Australian retailers. On top of that, Woolworths said in a recent update that the execution of some of its own key initiatives at David Jones had been "poor" or "delayed".

With both businesses under pressure due to a difficult consumer environment in Australia and a move to online retailers, analysts say a deal may just exacerbate David Jones's own problems.

First-half sales at David Jones were 3.3% lower on a comparable basis and 3.8% lower in total. It said the first quarter was particularly difficult as it moved to new systems and structures. Adjusted operating profit from the division fell by more than a third to A$66 million. Woolworth's has reassessed the carrying value of David Jones, resulting in an impairment charge of just under R7 billion.

According to BusinessInsider, Myer's sales have been sliding due to pressure from digital players. The group's executive chairman Garry Hounsell has highlighted poor execution of the retailer's strategy, including its failure to respond to the heightened competitive environment. BusinessInsider says Myer's largest shareholder, Premier Investments, is pushing for the chairman and directors to be replaced.

Meanwhile, The Sydney Morning Herald quoted Woolworths as saying the rumours had no basis, while Myer declined to comment. Myer proposed a "merger of equals" with David Jones four years ago before its takeover by Woolworths. The rationale was that a merged company would have the size to negotiate better rent or lease exits from landlords, cheaper prices from retailers, and greater efficiency by combining corporate teams, The Sydney Morning Herald said.

Woolworths closed 2.4% higher at R61.74 on Friday.

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