Why Premier Investments break-up won’t be Solly Lew’s last deal

Is retail billionaire Solomon Lew taking a leaf out of Frank Lowy’s playbook?

In late August, Lew announced that Premier Investments, a company he founded and floated on the stock exchange in 1987 only a few months after the Black Monday financial markets crash, was exploring the possibility of a demerger. Premier owns retail brands, among them Smiggle, Peter Alexander, Just Jeans, Jay Jays, and also has stakes in appliance maker Breville and department store Myer.

The argument for a demerger is that Premier’s conglomerate structure meant that its shares weren’t reflecting the true value of its different businesses, which could be unlocked by spinning off assets from its retail portfolio. It recruited investment bank UBS to explore a possible demerger, which is no surprise since ex-UBS banker Tim Antoine sits on Premier’s board.

It would also seem to answer the question about whether any of Lew’s progeny would step up to run or have future involvement in Premier. Lew, 78, who’s worth $4 billion, and chairs Premier, has three adult children, Jacqueline, Peter and Steven, who are all running successful private retail businesses that include well-known brands such as Nine West, Seed and House. They are a tight-knit family but none of Lew’s offspring are currently involved with Premier.

There are parallels between Westfield and Premier’s stories.

Frank Lowy was 87 when in 2017 he sold the listed shopping centre giant Westfield, which he’d co-founded, to European property giant Unibail-Rodamco in a deal worth $33 billion.

It solved the problem that had plagued Westfield’s shares for several years: they were undervalued. Westfield shares traded at a discount to net asset value, which is when the value of the company’s assets are higher than the market value of the company itself.

Moreover, Lowy, who chaired Westfield, used the deal to resolve the succession question. Two of his three sons, Peter and Steven, were co-chief executives at the time of the deal.

Not long after selling Westfield, Lowy moved to Israel, where he cared for his ill wife, and continued to dabble in some investments but for all intents and purposes he was retired.

Is Solly Lew ready to retire?

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For years, Lew’s been described as one of Australia’s most talented retailers. In 2016, he was inducted into the World Retail Hall of Fame. Lew might even contend he’s the country’s best retailer, a view likely disputed by fellow retail billionaire Brett Blundy.

What isn’t in doubt is Lew’s passion for retail. Last year, Lew joined many other rich and high-profile Australians who were invited to Lindsay Fox’s 85th birthday on a private 12-day cruise from New York to Montreal. While some guests were making demands for port side rooms - Lew was considering how to use the trip to visit retail and department stores in North America. By some accounts, Lew visited many stores, harassing shop assistants about what clothes and brands were selling, the trends they noticed, and returned from that trip with more than a dozen duffle bags of clothing and inspiration for the forthcoming season.

It’s what any good retailer like Lew and Blundy would do. But there are some who wonder if a more accurate description of Lew isn’t that he’s the country’s best retailer but that he’s a terrific asset trader operating mostly in a retail world.

Common to many of Lew’s deals over the decades has been his position of taking minority stakes in businesses, enough to have a seat at the table or exert control, and then waiting patiently, often for years or decades, before exiting at a hefty premium.

This has been demonstrated throughout his career, where he has extracted a top price by selling down minority stakes from Coles Myer in 1999 and in 2007; in Country Road to South African group Woolworths in 2014; in Zara Australia to Inditex in 2015 and 2018. In the 1980s, there were examples where Lew forced Abe Goldberg to buy him out at a handsome profit from Entrad Corporation, and later in 1981 when Lew offloaded his stake in department store David Jones to John Spalvins’ Adelaide Steamship.

Smiggle is one of the divisions of Premier Investments, which could be demerged as the group undergoes a six-month strategic review. Credit: Edwina Pickles

To be sure, Lew has had controversial and dud deals too, but his $4 billion in wealth means more wins than losses.

What is also common to many of Lew’s deals is his love for a nagging battle with the person or company on the other side of it. The current management and board of department store Myer knows this only too well.

Premier recently increased its stake in Myer to 29 per cent. Premier has a director on the Myer board in Terry McCartney, a former managing director of Myer Grace Bros.

Lew, who controls 42 per cent of Premier, was a chair of Coles Myer in the 1990s. Would he desire to become Myer’s chair again? A breakup of Premier, and a return to its roots as a holding company with stakes in listed companies, property and cash, may pave the way for it. The mercurial Lew will keep everyone guessing.

There’s a lot of nostalgia and angst in Lew’s history with Myer. The company and its fate have been a lifetime’s ambition of his.

For now, the strategic review of Premier’s business is expected to take six months.

Premier’s shares are trading near $26. Goldman Sachs analysts have a sell on the stock and a target of $20.90, while Morgan Stanley and Blue Ocean Equities, the latter is Lew’s preferred broker, have targets of $31 and $32 respectively.

The difference in stockbrokers’ forecasts partly reflects a focus on slowing retail sales in a tougher economic environment, where customers are closing their wallets, and the growing capital expenditure required for each of Premier’s businesses. It also reflects the mixed set of results that have been witnessed in recent decades from demergers. And there is a long list.

More recently there was Woolworths spin-off of Endeavour in 2021, and Illuka’s demerger of Deterra in 2020. In both instances, the share prices of those stand-alone businesses are below what they were at listing. There are also older examples of underperformers such as Paperlinx that was demerged from Amcor in 2000 and Onesteel spun off from BHP in 2000, and Asciano demerged from Toll in 2007.

Some examples of demerged entities that have performed well over a longer period were Henderson, spun out of AMP in 2003, Australian Wealth Management demerged from Tower in 2006, Dulux spun out of Orica in 2010, Treasury Wine demerged from Foster’s in 2011, Orora demerged from Amcor in 2014, and United Malt spun out from Graincorp in 2020.

The argument for a demerger is that stand-alone companies get more attention, more capital, can be more agile and establish a new culture, and aren’t burdened with corporate overheads, but ultimately, it really does come down to the management team.

Lew’s retail and trading legacy is overwhelmingly strong.

It’s unlikely that the break-up of Premier will be his last deal. It’s a weakness for Lew, one which he identified in himself: the desire to always do one more deal. What that means for Myer remains unanswered.

For Lew, it’s clear he’s not yet ready to follow Lowy into retirement.

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