Bizarre bid puts focus on DJ’s real value

Bizarre bid puts focus on DJ’s real value

“[David Jones] has some good properties in its books at $450 million and some suggest these properties could be worth $800 million.”After the bizarre emergence of a predator for David Jones, who turns out to have more layers of complexity than Dostoevsy’s Crime and Punishment, investors are starting to dump the stock on fears that a takeover bid will not eventuate.

By midday the stock had fallen more than 5 per cent, after rising more than 14 per cent on Friday as news emerged of a $1.65 billion takeover proposal. For hedge funds the unsolicited approach and share price rise on the last trading day of the 2012 financial year would have been a dream come true.

It certainly got the cynics talking about whether it was a bogus offer or merely an unorthodox way of conducting business. For most of Friday nobody knew who was behind the offer.

By the weekend the mystery man, John Edgar, came forward and said it was a legitimate approach and that he had the backers. The jury is still out on that one. There is a lot of speculation that he has various property backers, but none have come forward.

But what it has done is focus the market on the break-up value of David Jones as a property play. It has some good properties in its books at $450 million and some suggest these properties could be worth $800 million.

If John Edgar turns out to be a big talker with no backing, it has at least put the spotlight on the value of David Jones in the hands of private equity or a trade buyer who can sell the property, lease it back and without having the headache of a big capital gains tax bill.

It has also made the boards of Australia – and regulators – sit up and think about when is the right time to tell shareholders of an approach in terms of abiding by the rules of continuous disclosure. Some companies go in half cocked, announcing anything that might be market sensitive, while others are cautious to a point that they never let shareholders in on an approach until it becomes public.

Examples of the latter include an approach by Westpac to buy Suncorp in 2008 at $23 a share. Shareholders only found out after Westpac had gone away. Not surprisingly investors got angry that the chairman of Suncorp John Story hadn’t engaged with Westpac. There are similar cases where shareholders are kept in the dark.

But David Jones will be one of many retailers that will face takeover scrutiny in the next few months. Others believed to be in the sights of predators include Billabong and Pacific Brands. Most retailers in Australia have missed the boat in terms of embracing online competition and are now suffering the consequences.

Overseas competitors and private equity operators who need to spend some of their pre-committed funds this year are on the prowl.

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