For Myer, Solomon Lew’s Premier merger now hinges on a question of fairness

A major test is coming up for Myer shareholders on the planned $900m-plus merger with Solomon Lew’s retail brands.

Myer’s share price sale has dropped out of the threshold of fairness for the upcoming vote. Picture: Gaye Gerard

A major test is coming up for Myer shareholders ahead of a next week’s vote on the $900m-plus merger with Solomon Lew’s Apparel Brands. And it’s all about fairness.

A profit warning following sluggish sales and earnings spanning the all-important Black Friday and Christmas and Boxing Day period across both retailers, triggered a sharp share sell off across the two.

However, the drop has even bigger implications for Myer just weeks out from its high stakes merger vote.

The department store’s shares have now dropped below the threshold the planned merger deal would be deemed “fair” – although it is still considered reasonable.

Lew’s Premier Investments were the hardest hit in sales through the period with first-half earnings now expected to be off as much as 36 per cent, raising questions among some why Myer is paying up to get bigger on proprietary fashion brands at a time when the market is turning down.

Myer was hit by slowing sales during the critical November to January period. Picture: Gaye Gerard

Myer meanwhile warned first-half profit was likely to be down 25 per cent with sales impacted by “challenging macroeconomic conditions”.

Myer also had unexpected ramp-up costs in the opening of a new national distribution centre in Melbourne’s west, hurting profit.

Last month, independent expert Kroll assessed the combination of Myer with billionaire Lew’s domestic brands business to be “fair and reasonable”.

Under the terms of the merger deal, Myer is planning to issue hundreds of millions new shares to Lew’s Premier Investments in return for brands like Just Jeans, Dotti and Portmans to be folded into the department store. The new shares will be immediately spun out to Premier Investment shareholders.

The deal effectively becomes a reverse takeover, with Myer shareholders holding 48.5 per cent of shares in the enlarged Myer-Just Jeans retailer, while Premier shareholders will own 51.5 per cent through a direct distribution. Following the deal, Lew’s private vehicle Century Plaza will emerge with 26.8 per cent.

Kroll put a value on Apparel Brands – Just Jeans, Portmans, Dotti and Jay Jays – in the range of $848.3m to $946.3m, including the retained cash in the business that is also set to go to Myer.

However, Kroll noted the break-even Myer share price at which the combination is not fair to shareholders not linked to the Lew camp is $1.06 each. The very bottom end of a range where the deal stacked up for Myer shareholders was 92.5c (the top end was $1.195).

At lunch on Monday, Myer shares were off more than 17 per cent at 95c each. And Premier Investment was down more than 16 per cent at $27.65.

Kroll qualified its comments to say the analysis has limitations, and any movement in Myer’s shares could also reflect a rerating of the sector or movements in the broader shareholder.

Still, the earnings update from the two retailers shows a tough time ahead for the sector, while the economy remains sluggish and interest rates are high.

Official figures released last week show retail sales in November increased a softer than expected 0.8 per cent. That figure also took in the Black Friday sales.

Lew’s Premier said in a statement: “retail conditions have remained challenging through the first half of 2025 with customers continuing to experience cost of living pressures across all of Premier retail’s global markets and having a strong focus on value”.

Myer’s Boxing Day Sales came as cost of living remains top of mind for shoppers. Picture: Tim Hunter.

Despite the valuation drop, supporters of the Myer-Just Jeans deal are likely to argue the tougher times highlights the need for the retailers to be more aggressive on costs.

Under the planned deal, the merged entity is expected to return more than $30m in annual synergies across savings in warehousing, distribution and sourcing of brands.

At the same time, Myer’s well-regarded loyalty scheme MyerOne will be offered to millions more customers, helping to protect sales.

Finally, Lew’s brands run at a higher sales margin. Any uplift for Myer’s current skinny margins will fall straight to the bottom line.

Earlier Monday, Myer told shareholders it strongly supported the merger, arguing it will deliver a “step-change” in market position and generate substantial strategic and financial benefits.

Myer’s independent directors continue to recommend the merger, the retailer added.

Myer shareholders will vote on the merger on January 23. If the deal goes ahead, the new retailing entity will trade from early February.

Originally published as For Myer, Solomon Lew’s Premier merger now hinges on a question of fairness