By Eli Greenblat
Olivia Wirth has stamped her authority on Myer as its new executive chair by launching the department store owner’s most ambitious growth strategy in its 124-year history, as it broadens its retail wings to buy up Solomon Lew’s portfolio of fashion and apparel brands.
Only four months behind the desk, Ms Wirth has sealed the $864m purchase of Just Jeans, Jay Jays, Portmans, Dotti and Jacqui E from Premier Investments in a complex scrip and cash deal that will see Mr Lew return to the Myer boardroom after a three-decade absence from when he was the chairman of the old Coles Myer conglomerate.
The one deal unveiled on Tuesday will reshape both companies and the fortunes of the billionaire Mr Lew.
For Myer it will herald a new chapter in its long history to see it expand beyond its 56 traditional department stores, and break out of decades of stagnant growth, to own more than 700 stand-alone fashion stores spread across Australia and New Zealand, add almost $1bn in annual sales and grow staff ranks by 50 per cent to 17,300.
Premier Investments will temporarily own 51.5 per cent of Myer – with the new shares plus its existing Myer stake to be distributed to its shareholders – and emerge with a greater focus on its remaining high-growth sleepwear chain Peter Alexander and kids stationery store Smiggle, as well as a large equity stake in kitchen appliances maker Breville and a growing pile of cash.
Mr Lew will be able to devote greater attention and capital to the offshore growth opportunities for Peter Alexander, which is to launch in Britain with its first stores in November, as well as opening more stores overseas for Smiggle which already has a presence in Britain and Southeast Asia.
Ms Wirth, the former loyalty boss of Qantas, said she would be “single minded” on trading the new businesses to their peak performance, integrating them with Myer and developing opportunities across sourcing, data, technology and customer service as the brands are brought into the fold.
“I’m genuinely excited about it,” Ms Wirth told The Australian as she unveiled her deal to issue 890.5 million shares in Myer to Premier Investments to buy the fashion brands, including a $82m cash payment by Premier back to Myer to smooth out capital requirements.
“I’ve spent a considerable amount of time during due diligence getting to better know those businesses, and that’s not just financial, it is understanding how they operate, where their strengths are, and one of their strengths is their people,” Ms Wirth said.
“With any business you always have a certain level of attrition, good people go, good people come, and I know that the strength of these two businesses will make a really compelling business for people to work in.
“It will be one of Australia’s largest retail networks and I know it will attract great talent.”
Mr Lew said he and Ms Wirth as well as the boards and management teams of both companies had spoken at length about the opportunities presented by the deal.
“Premier also sees significant opportunities and I am personally very excited at the opportunities for the combination of both businesses and our respective team members,” he said.
“This is an opportunity for our team and our shareholders to play an important role in the future of the Australian and New Zealand retail landscape.
“Myer and our apparel brands will be stronger together – delivering vertical integration, scale, additional margins and loyalty opportunities.”
Investors rushed Premier shares on the news, sending its stock up as much as 18 per cent before closing up almost 10 per cent at $33.94, and although Myer shares initially rose they ended the day down 1.5c at 95.5c.
Oscar Oberg, lead portfolio manager Wilson Asset Management, described the merger as a “great outcome” for both Myer and Premier shareholders.
“For Myer and the apparel brands we see conservative synergies and a growth strategy led by its customer loyalty program Myer One, with the merger being done at the bottom of the market for retail,” Mr Oberg said.
“For Premier the market can now finally see the quality of the Smiggle and Peter Alexander businesses and the offshore growth strategy which can drive a higher valuation over time.”
Under the details of the deal – in a number of steps between now and in early 2025 when it is completed – Myer will buy the five fashion brands from Premier’s Just Group division in return for around $860m worth of new Myer shares.
Premier is already Myer’s largest shareholder, after Mr Lew purchased a 10 per cent stake in 2017 and later built up the stake, and all the Myer shares will be distributed in specie to Premier shareholders, of which Mr Lew’s private company Century Plaza is the largest investor.
It will see around 7.2 Myer shares distributed for every one Premier share held by investors.
Following completion of the deal, it is expected that Century Plaza will become Myer’s largest shareholder with a pro forma shareholding of 26.8 per cent. Premier’s current shareholding in Myer is 31.2 per cent.
Following completion, it is intended that Mr Lew will be invited to join the board of Myer as non-executive director representing Century Plaza.
Mr Lew will sit alongside long-time business associate Gary Weiss, who is Myer’s deputy chair and a former director of Premier Investments. Another Myer director, Terry McCartney, is also a Premier director.
Ms Wirth has been negotiating with Premier since at least June to pull off the deal as part of her strategy to grow Myer beyond its traditional base and sink its teeth into other stand-alone fashion and apparel brands.
The deal is expected to deliver synergies of at least $30m earnings per annum, and deliver significant earnings per share accretion on a pro forma 2024 basis. The deal was unanimously recommended by Myer directors.
Myer will emerge with annual sales of $4bn and earnings on a pro forma 2024 basis of $152m.
The deal will see Myer expand to take in the 719 stores operated by the Premier fashion brands and lift its annual sales from $3.266bn to $4.057bn.
Of the brands Myer is buying, Just Jeans is the largest with $294m in sales, Jay Jays has $164m in sales, Portmans $145m, Dotti $112m and Jacqui E $76m.
“The combination of Myer and apparel brands is transformational for our business.”
“Myer and apparel brands have highly complementary store footprints and customers who will benefit from an expanded omni-channel ecosystem that enables them to engage with the group’s loved brands when and how they want,” Ms Wirth said.
Myer and Premier have agreed to provide a range of shared services for 12 months, and if extended up to 12 months more on a cost-plus basis.
The deal is subject to a number of conditions including Myer and Premier shareholders voting in favour of the transaction, and both companies obtaining regulatory clearance. Subject to the satisfaction of these conditions, the transaction is expected to complete by early 2025.
Myer shareholders will vote at an extraordinary general meeting in late January, as will Premier shareholders.
As part of the investor presentations to flesh out the deal, Premier also revealed more detail around its Peter Alexander and Smiggle businesses. The two brands had combined sales in 2024 of $805m, gross profit of $541m, gross margin of 67.2 per cent and earnings of $239m.
“Peter Alexander and Smiggle 2024 EBIT margins were around 30 per cent higher than our expectations,” Citi analyst James Wang said.
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