Solomon Lew, Myer board battle set to renew

RETAIL billionaire Solomon Lew sent shockwaves through the Myer boardroom in 2017 but the real fireworks are yet to come, writes John Dagge.

Jodi Anasta was an ambassador for Myer until last month. Picture: Richard Dobson

A BRIGHT red spray bottle of weedkiller stands oddly out of place in the plush offices of Melbourne retail magnate Solomon Lew.

A disgruntled Myer shareholder has sent it to Lew — the biggest shareholder in the iconic but floundering department store chain — who is engaged in a bare-knuckle brawl with its board.

The unusual gift references Mr Lew’s response to a marathon presentation given by Myer management to investors and analysts at a strategy day last November.

VALUE TO TUMBLE FROM DAVID JONES

DECLINE OF THE AUSTRALIAN DEPARTMENT STORE

Led by chief Richard Umbers, Myer’s executive team laid out why its $600 million turnaround strategy was appropriate in a rapidly changing retail market.

And, Myer’s top brass maintained, the strategy was delivering “green shoots”.

Lew’s response was typically short, straight and brutal: “I only see weeds”.

LEW V MYER

The billionaire’s battle with Myer provided the biggest display of corporate fireworks last year.

In March, the fuse was lit when Lew’s listed retail vehicle, Premier Investments, grabbed a 10.8 per cent stake in the 117-year-old department store chain, becoming its biggest investor.

Premier, whose stable of brands includes fashion chains Just Jeans, Peter Alexander and Portmans and stationery brand Smiggle, paid $1.15 a share. Myer’s share price has since fallen to less than 65c, handing Lew a paper loss of about $45 million.

Solomon Lew with Premier Investments chief Mark McInnes.

Lew used Premier’s full-year results in September to formally declare war, saying Myer “had lost its way’’ and was selling product that “belongs in the Salvation Army”.

He had sought a meeting with Paul McClintock, Myer’s then chairman. Lew was told he would have to wait until the day of the annual meeting, late in November, when a slim 30-minute window could be arranged.

Red flag meet bull.

Myer’s poor performance prompted McClintock — who had previously flagged plans to retire after a transition period of an unspecified length — to bring forward his retirement to the day of the annual meeting.

McClintock also moved to inject new blood into the board of the Melbourne-based department store group.

The moves failed to sate Lew’s appetite for change — Premier opposed the appointment of incoming chair Garry Hounsell and two other directors nominated by Myer.

Lew also pushed to have his own hand-picked directors join the board as the rift between Myer and its combative major shareholder exploded, with both sides accusing the other of lying.

The retail magnate wants Premier non-executive director and former Myer Grace Bros and Kmart managing director Terry McCartney appointed to the Myer board.

It also wants Tim Antonie — a Premier non-executive director and former managing director of UBS Investment Banking in Australia — and Abacus Property chief investment officer Steven Sewell on the board.

The trio, says Lew, have been chosen to match precise issues Myer needs to urgently address.

These, he says, include its lack of boardroom retail experience, its history of failed acquisitions such as the investment in Topshop Australia, and its need to negotiate with landlords to exit non-performing leases.

Hounsell says the retailer has all the experience it needs to revive the business, pointing to his time on the boards of Qantas Airways and Treasury Wine Estates, which have undergone major and successful overhauls in recent years.

Macca’s view.

Myer and the nation’s most prominent proxy advisers have also accused Lew of trying to gain control of the department store chain without paying a takeover premium.

Private companies associated with Lew and his family are also key suppliers to Myer while Premier is a competitor — relationships that, they argue, pose deep conflicts of interest.

Lew has dismissed such concerns, pointing to the fact Myer’s share price has largely been in free fall since the retailer was floated in 2009, when its shares cost $4.10 apiece.

WHERE TO NOW?

Lew failed in his attempt to roll Hounsell and two other Myer directors at the annual meeting in November.

But he drew blood, gathering enough votes to deliver a “first strike” against the remuneration report.

Almost 30 per cent of votes came down against the group’s remuneration report — more than the 25 per cent threshold required for a strike under Australian corporate law.

If Myer receives a second strike at its annual meeting this year, shareholders could then vote to spill the board.

Not that anyone expects Lew to wait that long.

Premier’s shareholding in Myer is large enough for it to call an extraordinary general meeting, where he can ask shareholders to vote for the trio of directors that he says can revive Myer.

Lew’s camp expressed little disappointment at the outcome of the Myer annual meeting.

They point out they gathered significant support despite doing little formal campaigning or engaging with proxy advisers or groups such as the Australian Shareholders’ Association.

Lew issued plenty of statements to the media ahead of the annual meeting and the crucial Christmas trading period.

But the campaign to date, at least publicly, has lacked the organisation of — by way of comparison — that launched by US activist investor Elliott Management in its bid for a shake-up at BHP Billiton.

Elliott’s campaign involved targeted advertising, the launch of a dedicated website and regular meetings with key investors.

Myer’s performance over Christmas — a trading period that can make or break a retailer’s year — is also unlikely to do it any favours.

It issued a rare pre-Christmas profit warning after sales for the first two weeks of December were 5 per cent lower than they were in that period a year earlier. That followed a 2.8 per cent slide in sales during the 13 weeks to October 28.

About the same time last month, Myer parted ways with two of its long-serving and high-profile “brand ambassadors”, model Lauren Phillips and Neighbours star Jodi Anasta.

The retailer’s share price hit an all-time low on December 21 of 61c and, at 62.5c now, has barely recovered. Analysts say there is a risk the chain, which will publish first-half results in March, will hand down its worst interim report card since it took to the stock market.

It could, they say, include major writedowns to the value of Myer’s goodwill and brands — a warning given added weight this week when South African company Woolworths Holdings announced it would write $712.5 million off the book value of rival chain David Jones.

Myer chair Garry Hounsell and chief executive Richard Umbers.

Together, those factors could result in Lew pulling the trigger on an extraordinary general meeting early this year.

Myer’s other major shareholder is fund manager Investors Mutual, which holds a 9 per cent stake. The fund’s head, Anton Tagliaferro, has to date backed the Myer team.

Lew trained his sites on Tagliaferro following Myer’s annual meeting, saying he was responsible for its “dismal performance and any disappointments to come in the future”.

He also said he would not be buying Tagliaferro’s stake despite fielding several offers to do so. If that remains the case, Tagliaferro’s votes could make or break the board.

Another key target is likely to be shareholders who hold so-called unmarketable parcels of shares.

There are more than 17,000 investors with shareholdings now worth less than $500 due to the slide in the Myer share price. Such parcels are difficult and expensive to sell — online brokers such as Etrade do not process transactions under $500.

Lew has previously stated more than 35 per cent of Myer’s shareholdings are unmarketable — a vein of discontent which could prove handy.

Myer’s board survived round one, but Lew v Myer is just getting started.

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