Myer’s merger bid for Apparel Brands gets analyst approval

Analysts like what they see in a merger of Myer and Premier’s Apparel Brands, and some are already speculating on how many Myer shares Premier shareholders will receive.

Myer is looking to merge with Premier Investments’ Apparel Brands.

The proposed merger of Myer and Premier Investments’ Apparel Brands has won over analysts, with synergies of up to $55m being forecast.

The proposed deal, despite being light on detail at this stage, is being lauded as solving several problems for both Myer and Premier, while bringing the retail nous of Solomon Lew closer into the Myer fold.

The proposed merger, revealed on Monday, would involve Myer issuing scrip for Premier Investment’s Apparel Brands division, which operates 717 stores nationally across Just Jeans, Jay Jays, Portmans, Jacqui E, and Dotti.

Premier would then cease to be a shareholder of Myer, while Premier shareholders would become direct shareholders of the merged entity, while retaining their Premier shares also..

Mr Lew’s private investment vehicle Century Plaza Investments, which is Myer’s largest shareholder with a 31 per cent stake, would become Myer’s largest shareholder, albeit with a shareholding less than Premier’s current holding.

Unified Capital Partners, which has a bullish price target of $38.86 on Premier shares against yesterday’ close of $32.34, said their early analysis “which has been brewing from prior research, sees a significant prize on offer, with the potential merger likely to see

huge synergies on revenue and costs and a leaner, more fit retailer able to take advantage of loyalty’’.

UCP estimates Premier could unlock about $40m in synergies driven by a reduction in leasing, and an improvement in margins.

“Whilst everyone has been focusing on retail earnings and sentiment, Premier has been delivering in spades with the (strategic) review and this is real and is being championed by the leading listed retail mind in the country,’’ UCP analysts said on Tuesday.

MST Marquee analysts estimate the synergies could be as high as $55m, and calculate the shareholder split post-merger to be 55 per cent Premier and 45 per cent Myer.

“We estimate Premier Investments shareholders receive approximately 8.2 Myer shares for every Premier share held,’; they said.

“The outcome is dependent on the earnings split. At 50:50, Premier shareholders will receive 6.8 Myer shares.’’

MST Marquee says most of the synergies will come from “adding Premier to Myer stores in concession space and improved terms on sourcing product’’.

The analysts also said the merger would put Mr Lew “in the box seat’’ to have significant influence over the combined business.

Jarden analysts calculate Premier shareholders could end up with as much as 69 per cent of the merged entity.

“We estimate the market is currently implying a circa-$700m valuation for Premier’s Apparel business (and) at a six times EBIT multiple, we see an implied valuation of about $40 per share for Premier under the combined structure,’’ Jarden said in a note to clients.

“The proposal is early stage, non-binding and exploratory in nature. However, given the strategic upside, we see a high probability of a deal progressing,’’ Jarden analysts said on Tuesday.

“Details of potential synergies, potential capital transferred (given differing working capital cycles), management structures and governance principles will be needed.

“Overall, we see significant value in the proposal for Premier in that Myer should be set to extract material synergies and Premier would be a cleaner vehicle that should re-rate via clean exposure to higher growth Peter Alexander and Smiggle brands as they embark on accelerating global rollouts.’’

Myer shares closed 6.4 per cent higher at 82.5c on Tuesday.

Originally published as Myer’s merger bid for Apparel Brands gets analyst approval