Myer boss Olivia Wirth set to deliver retailing prize to Solomon Lew

The billionaire retailer is calling all the shots in Oliva Wirth’s audacious bid for the department store to get bigger.

Myer’s Olivia Wirth has launched an audacious merger plan for Myer. Picture: John Feder

New Myer boss Olivia Wirth has declared the best defence is attack and didn’t waste any time as she launched an audacious plan that tackles the retailer’s longer-term challenges while delivering the department store to billionaire shareholder Solomon Lew.

Wirth’s radical bid to combine Myer with the portfolio of cashflow-rich retail brands at Lew’s Premier Investments represents the biggest strategic play since the department store attempted to merge with rival David Jones a decade ago. It also gives Myer a better chance at controlling its own destiny in a forever tough retail space.

For Wirth the question on taking charge has been “how do we shift gears and really look for new growth opportunities and set the strategic direction”?

The deal, which Myer is at pains to present doesn’t deliver a change of control to Premier, would see the department store combined with Premier’s yet-to-be demerged retail business that houses brands like Just Jeans, Portmans, Dotti and Jacqui E.

However, the structure simultaneously delivers the ultimate prize for Lew after years of stalking, agitating and slowly raising the pressure on Myer.

Even though it was Premier Investments that had long been expected to be the one to launch a bid for Myer, this is a deal custom made for Lew.

Myer could double the size of its business through the tie-up with Solomon Lew’s Apparel Brands. Picture: NCA NewsWire

It gives the billionaire even more reason to push ahead with his mooted spin-out of Premier’s two growth businesses Peter Alexander and Smiggle. These businesses have global ambitions and could prove to be much more lucrative over time than a tie-up with Myer.

And it also gives Lew a personal stake in Myer, rather than through his listed Premier vehicle.

The approach was made by Wirth, the former Qantas executive just weeks into the job as Myer CEO, but the key for Myer shareholders is to remember they are going into this deal with their eyes wide open.

With terms and pricing yet to be decided, they should be prepared that Lew will demand they pay up to get access to a more efficient retailing machine. This will be assessed by an independent expert in coming months.

The transaction follows a complicated and at times hostile history between Lew and Myer.

Lew’s patient use of ASX creep rules that govern takeovers has put him in the box seat on talks with his stake in the retailer now passing 31 per cent.

Still, Lew’s approach to Myer has clearly changed in recent months particularly as he was considering how it fitted in to Premier’s longer-term future when growth engines Peter Alexander and Smiggle were demerged.

It was notable Lew gave his warm backing for former top Qantas executive Wirth in March when she was named for the newly merged role of joint chair and chief executive.

This, and the addition of one of Lew’s closest professional ally’s Gary Weiss to the Myer board, was widely seen as Myer entering a new era of co-operation with the billionaire. Lew currently has only one representative on the board – former retail executive Terry McCartney -with Weiss sitting as an independent.

Margin uplift

Prior to the deal being floated, Myer was valued at a little over $500m, while Premier’s apparel brands that Myer is eyeing have a portfolio value of nearly $1bn, based on numbers from brokerage MST Marquee.

With annual sales of more than $3bn, Myer’s turnover is three times the size of Lew’s Apparel Brands portfolio, but delivers just half the proportional earnings

In other words, Myer has to work twice as hard to deliver the same earnings outcome.

And its these numbers that represent the biggest potential for Lew and Premier’s backers.

If, through the combination of the two businesses, Lew’s influence can deliver even a small uplift in profit margin through cost savings, scale and a sharper retail antenna, Myer’s revenue pool could translate to an outsized earnings lift.

Recently appointed Myer executive chair Olivia Wirth at the Sydney store. Picture: John Feder

The proposed merger involves Myer issuing shares to Premier and the stake would be demerged directly to Premier shareholders. And it means the demerger will see Lew personally become the biggest shareholder in Myer through his proportional holding in Premier.

Any deal will represent a transformation for Myer given it will emerge as a more integrated fashion retailer operating across multiple brands and more than 700 boutique stores. While it has little institutional experience on this, Lew’s management team is expected to remain in place.

A merger also plays to Wirth’s strengths, given it offers the potential to substantially expand the well regarded MyerOne loyalty program. Until last year Wirth was running Australia’s biggest loyalty business at Qantas.

So too there are savings overlaps in sourcing, buying, rents and distribution for the combination of Myer and the Premier brands.

Wirth has made early moves to claw back control of margins, halting the sales process of Myer’s fashion brands sass & bide, Marcs and David Lawrence. She also wants to grow Myer’s private label brands to gain greater control of the retail offering at better returns.

‘Walking the floors’

Lew is widely regarded as the nation’s top retailer and his command across every part of the supply chain remains unchallenged.

This and his obsessive management style built around walking the floors, has delivered lucrative returns for his legion of loyal Premier shareholders.

Terms of the proposed share-based deal, including pricing, are a long way from being decided, but Lew will still be calling the shots in a deal that stands to more than double the size of Myer to above $1.6bn.

Myer’s shareholders have declared they are well and truly along for the ride, on Monday sending the retailer’s shares up nearly 20 per cent, in anticipation of the earnings jump any deal is likely to deliver.

This too has put a much-needed spark under the retail sector that is suffering from the broader spending slowdown. Premier shares ended up nearly 7 per cent, valuing the company at more than $5bn.

There are a lot of things that need to go right including due diligence. Myer’s talks with Premier are “preliminary, non-binding and exploratory in nature”, it said.

Solomon Lew and Premier Retail boss John Bryce. Picture: Louis Trerise

Rather than wait for Myer to be stalked by the billionaire in coming years, Wirth chose to move while the broader demerger of Lew’s empire is still being drawn up, with a proposal that splits off international-focused and growth brands of Smiggle and Peter Alexander into separately listed entities from next year.

This would have left a big question over the future of Lew’s domestic brands like Just Jeans, Portmans, Dotti and Jay Jays, which combined generate nearly $850m in sales as a lower growth, but a cashflow-rich business. The expectation had been Lew would eventually use this as a platform to launch the bid for Myer.

But Wirth has reversed the order of things.

Ultimately backing his apparel business into Myer offers an elegant solution for the future and the staff of his Australian brands business. However Lew will still need to find a solution for the cash sitting in Premier and its near 30 per cent Breville shareholding.

Lew would emerge as a director on the new Myer board, not as chairman, although those who follow him know the “always on” retailer is never going to take a back seat.

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Originally published as Myer boss Olivia Wirth set to deliver retailing prize to Solomon Lew