By Carrie LaFrenz
Myer says its merger with a big portfolio of clothing brands owned by Solomon Lew’s Premier Investments will let it expand its lucrative loyalty program to younger shoppers and get better deals from its suppliers in the biggest shake-up of the retailer since it returned to the ASX in 2009.
The deal, announced on Tuesday, will add 719 stores to Myer and a portfolio of labels that range from those appealing to young adults in Jay Jays and Dotti to older women with Jacqui E. Those chains, known as Premier’s Apparel Brands, also include Just Jeans and Portmans.
Mr Lew will personally control about 27 per cent of the bigger Myer group if the transaction is approved by shareholders, and Premier will focus on growing its Peter Alexander sleepwear and Smiggle stationery brands.
The 124-year-old Myer will expand to have 17,300 staff in Australia and New Zealand, annual sales of more than $4 billion and $250 million in earnings.
Myer executive chairwoman Olivia Wirth, the former chief executive of Qantas Loyalty, said a bigger retailer would make it easier to negotiate with suppliers and landlords, and flagged a rollout of the department store’s popular Myer One loyalty program across the expanded network.
“This is an opportunity to continue to grow it in a way that is a step change,” she said of Myer One, which has 10.6 million members.
“That means Myer One moving across the five Apparel brands, so if you are shopping in Just Jeans, earning Myer One points, that means that we diversify our customer base. It provides us with access to a slightly younger demographic that will be important for future growth.
“And it gives us a great opportunity to cross-sell into other categories including beauty, homewares and gifting.”
Myer’s share prices jumped early on Tuesday before falling to close 1.6 per cent lower at 96¢. Premier’s shares gained 11.5 per cent to $34.44.
Wilson Asset Management is a Myer shareholder, and portfolio manager Oscar Oberg said the deal put the company on a pathway to return to the ASX 200. It fell out of the local benchmark in 2018 as profits slid.
“This business is now transitioning from balance sheet repair and bunkering down through a tough retail environment now to having real growth opportunities,” Mr Oberg said, adding that he was eager to hear more about Ms Wirth’s plans to drive higher sales.
“We think it’s a pathway for Myer to into the ASX 300, and we actually think it’ll get into the ASX 200 which will be massive for the company. We think the synergies are undercooked. I think it represents point 7 per cent of their cost base, and the market is yet to see the full strategy for revenue growth.”
In a deal foreshadowed by The Australian Financial Review’s Street Talk column on Monday, the two companies announced Premier shareholders would receive 890.5 million new Myer shares as part of the merger. The department store will also declare before deal completion a fully franked dividend of 2.5¢ per share to existing shareholders. Premier will provide $82 million in cash back to Myer to help fund the integration of the business. Premier shareholders will emerge with 51.5 per cent of Myer.
Mr Lew will remain chairman of Premier and take up a seat on the Myer board. His long-time lieutenant Terry McCartney and former Premier Investments director Gary Weiss already hold two Myer board seats. Mr McCartney will remain a director at Premier Investments.
“Premier’s board will be focused on the ongoing growth and performance of Smiggle and Peter Alexander, including as they pursue local and international growth opportunities,” Mr Lew said.
Mr Lew, 79, has been fixated on the department store chain for decades. He started his first business at 18, supplying dresses to the Myer Emporium in Melbourne. He later bought a large stake and took up a board seat at the company, becoming chairman of Coles Myer in 1991.
He was forced from the chairmanship in 1995 after it emerged Coles Myer had guaranteed millions of dollars in losses on share trades by Mr Lew’s companies. Mr Lew left the board altogether in 2002.
Mr Lew started buying shares in Myer again in about 2017 and has been a constant critic of how the company has been managed amid falling sales. Under Ms Wirth’s predecessor John King, Mr Lew sought to spill the board but was unsuccessful.
Angus Aitken, a prominent broker and the founder of Aitken Mount Capital Partners, said Mr Lew remained “hungry” despite approaching 80 and described the deal between Premier and Myer as a “cracker”.
“We don’t care about what these businesses look like in January we care about what they look like in January 2030 in five years from now,” he told his clients. “We think Myer earnings can grow a lot between now and then and the margin improve significantly and Myer can be a growth and free cash flow and dividend machine in the future and those are words that you never used around the Myer business for the last 20 years.”
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