IT COULD be one of the most costly April Fool’s jokes ever pulled on the Australian investment community, even if it is July, with a $1.65 billion takeover bid for the country’s second-biggest department store, David Jones, evaporating yesterday and causing its share price to dive.
The farcical nature of the day’s corporate activity included lingerie models, noodle shops, vanishing websites, a roller-coaster share price and the sometimes shadowy world of private equity investors.
The surprise David Jones bid, made public on Friday, created more than $175 million in value in an instant as investors piled into the stock hoping a takeover war would erupt. But the offer was pulled just as quickly yesterday afternoon, stripping $140 million from DJs’ market capitalisation as the shares gave up most of their gains.
In the wake of the disappearing takeover offer – which until Sunday night was being spruiked by its mysterious backer to local media via a PR firm – there may be renewed pressure on the Australian Securities Exchange’s rigid regulations on continuous disclosure and directors’ obligations to inform investors about every letter that comes across the boardroom table.
Last night, David Jones was forced to defend its disclosure of the offer to investors in a letter responding to a series of queries from the stock exchange.
In its letter, drafted by top-tier law firm Freehills, David Jones said it disclosed the ”unusual, incomplete and uncertain” offer to the exchange on Friday morning only because news of its existence was likely to be known to market participants outside the company.
Further details, including the identity of the purported bidder,
were disclosed later that day after David Jones became aware that a mysterious UK blog had published EB Private Equity’s name.
The last few days’ shenanigans came to a head late yesterday when David Jones, the upmarket and venerable 174-year-old department store, called for a trading halt in its shares on growing concern about the credibility of the billion-dollar proposed takeover from the unknown Luxembourg-based EB Private Equity, and its just as mysterious chairman, John Edgar.
In a brief statement to the market, David Jones said it had been informed via a letter from EB Private Equity that the unsolicited and incomplete $1.65 billion offer for 100 per cent of the company had been withdrawn.
”The EB Private Equity letter states that recent publicity around its proposal has made it difficult to proceed,” David Jones said.
A Sydney PR firm engaged by Mr Edgar and EB Private Equity to feed information to some media outlets is no longer engaged to work for the client.
”What is going on?” asked Goldman Sachs analyst Richard Coppleson. ”This has many investors questioning if this was a real bid and also the timing – on the last trading day of the financial year!”
The market’s response to the announcement that the bid had been withdrawn was immediate. The shares dropped 26¢, or 10 per cent, to close at $2.33, leaving the stock only marginally above Thursday’s closing price of $2.26, before the EB Private Equity offer was made public.
It is believed no one at David Jones has ever spoken to EB Private Equity or to its reclusive chairman over the phone and that all contact between the parties, going back to late May, was via email.
It is also believed that the Australian Securities and Investments Commission is investigating the entire affair.
Among the early victims of the past few days could be hedge funds that reportedly were shorting David Jones shares last week, with 10 per cent of the retailer’s issued capital being shorted. As the stock rallied on Friday after the announcement of the offer they piled into the market to buy up David Jones shares – at ever higher prices – to close out their positions and limit losses.
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