How Lew is lining himself up to be the ultimate winner

You have to hand it to Solomon Lew. His latest corporate restructuring strategy is a masterclass. It’s complex, brilliant and shows the remarkable acumen of the retail supremo as he edges closer to 80.

He has taken his sweet time, but Lew appears to be putting the pieces in place to cash out a decent part of the retail empire he has spent decades building.

Premier Investments chairman Solomon Lew would get a seat on Myer’s board if a proposed merger went ahead.Credit: Eamon Gallagher

Under a proposal announced on Monday, department store chain Myer will buy the older, and arguably more challenged, apparel brands of Jay Jays, Just Jeans, Dotti, Portmans, and Jacqui E, which are currently part of Lew’s empire. They are owned by Premier Investments, in which Lew has a 42 per cent controlling stake.

Myer’s largest shareholder, as it turns out, is Premier. And, it would be naive to believe Lew is not the hand behind this proposed deal, regardless of who gets the credit for engineering it.

The deal is structured in a way that lets Myer buy the apparel businesses using its own shares rather than cash. Premier won’t keep these Myer shares but instead distribute them directly to its own shareholders (the largest of which is Lew).

So, here is what the chessboard will look like if and when the deal is done.

Myer’s minority shareholders are getting excited by the idea that any shakeup could ignite growth. Credit: Getty

Myer will own its department stores and also a chain of lowish-end brands (some 717 stores) with a challenged growth profile, but with margins that well exceed those of Myer. And Lew’s shareholding in Myer will land at somewhere between 25 and 30 per cent, but he will own the stake directly and no longer via Premier.

Lew also won’t need to get his hands dirty making decisions on the day to day running of Myer (that will be up to the department store’s retail novice and newly appointed executive chairman, Olivia Wirth) but he will have plenty to say on strategy and direction and plans to join as a director.

He will be the puppet master, and Lew typically thinks of himself as an owner-driver.

Now, the first stage of Lew’s strategy has already been announced. It is Premier’s decision to spin off one or both of its two high-growth brands, Smiggle and Peter Alexander. These will be separated and independently listed. It will be (what’s called in markets) a liquidity event which will give Premier an opportunity to sell some shares and take some cash off the table.

Smiggle is one of Premier Investments’ most profitable brands.Credit: Louie Douvis

No doubt Premier will retain an interest, but how much remains unknown at this stage.

If the two plays, Myer’s proposed deal and Premier spinning off its best brands, come off, some retail experts say it is easy to imagine Lew emerging as something akin to the Warren Buffett of retail.

Now, we don’t yet know how much Myer is prepared to pay for the Premier apparel brands and who (Myer or Premier) gets a better deal. But it didn’t stop Myer’s share price to react with unbridled positive excitement, moving up 17 per cent.

The prospect of the department store buying about $100 million worth of earnings before interest and tax and around $850 million in revenue annually explains why investors are excited. Meanwhile, Premier’s share price also received a shot of adrenalin to push it up around 5 per cent. So the market thinks every player wins a prize.

It could be that Myer minority shareholders are getting excited by the idea that any shakeup could ignite some growth. But the deal is not devoid of risk. The model of a department store owning chains of apparel stores is something of a world first, according to retail experts.

Yes, there will be some synergies in buying and logistics and maybe even property, for the combined group.

And Wirth whose background in running the Qantas loyalty business should give Myer a boost in that department.

Meanwhile, there is one thing that cannot be in doubt. Lew is lining up to emerge the ultimate winner.

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