Myer’s bid for Premier Investments clothing brands provides headroom for loyalty to grow: CEO

Myer’s bid to merge with Solomon Lew’s clothing operations would create Australia’s largest retail tenant and presents new CEO Olivia Wirth with a huge opportunity.

Myer is looking to bulk up its brand offering through the deal. Picture: Supplied

Myer’s bid to merge with the clothing business owned by Solomon Lew’s Premier Investments would create a $4bn-revenue retail giant, and present new chief Olivia Wirth with the opportunity to supercharge its loyalty scheme.

Ms Wirth, the former chief executive of Qantas Loyalty and almost 15-year Qantas veteran, was credited with turning the Qantas rewards scheme into an earnings powerhouse, generating $451m in pre-tax profits last financial year on revenues of more than $2.2bn.

While there are several rationales for the proposed tie-up with Apparel Brands, which operates 717 stores nationally across the Just Jeans, Jay Jays, Portmans, Jacqui E, and Dotti brands, there is understood to be keen interest to grow its loyalty offering Myer One into one of the select few loyalty schemes which stand out from the pack in a competitive market.

The all scrip deal pitched to Premier Investments is at an early stage, with Myer not yet releasing a valuation for Apparel Brands, which E&P analysts have valued at about $1.2bn on an ungeared basis.

This compares with the pre-bid value of Myer of $536m.

Myer shares rocketed on the news of the bid on Monday, adding 20 per cent to close at 78c, while Premier Investments shares rose 6.9 per cent higher to close at $32.

Myer store banners are seen in Melbourne. Picture: Luis Enrique Ascui/NCA NewsWire

As well as providing the ability to expand Myer One across several new brands and a string of new retail outlets, the merger would also give Myer access to owned brands to complement its private label fashion offerings.

Myer does stock a number of private label offerings, generating about 25 per cent of sales according to E&P’s analysis, but the deal will enable the company to rapidly increase this proportion, without having to develop and grow the brands itself.

Under the proposal revealed on Monday, Myer would merge with the Apparel Brands business which operates 717 stores nationally across the Just Jeans, Jay Jays, Portmans, Jacqui E, and Dotti brands.

Myer would also retain its currently owned sass & bide, Marcs and David Lawrence brands, which had previously been contemplated for sale under the strategic review initiated by Ms Ms Wirth, who only stepped into the executive chair role up from a non-executive board position in March, and formally into the chief executive role earlier this month.

The deal would involve Myer issuing shares to Premier, valuing Apparel Brands on an as yet unrevealed earnings multiple. The indicative valuation of Apparel Brands, which turned over $845m in the 2023 financial year, has not been released by Myer.

Premier would then distribute those Myer shares to its shareholders, and Premier would cease to own shares in Myer.

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.

Premier director Terry McCartney currently sits on the Myer board, as does former Premier director and Lew ally Gary Weiss.

“If the proposed combination proceeds, it is expected that Century Plaza would be represented on the board of Myer,” Myer told the ASX.

“Any proposed combination would be subject to agreement of transaction terms, including the proposed merger ratio.

“Any proposed combination would also require approval by the board and independent shareholders of Myer, as well as the board and shareholders of Premier.”

Mr Lew has been using the creep provisions under the Corporations Act to increase his stake in Myer, buying up another 2.95 per cent in April to move to his current 31 per cent, after first buying up 10.77 per cent of the retailer in 2017.

Ms Wirth said the proposal was about resetting Myer for growth.

“Against the backdrop of a changing retail landscape, Myer has commenced a thorough review of its strategic direction and growth opportunities, focused on increasing profitability, improving returns and driving sustainable earnings growth for our shareholders,” she said.

“While Myer has one of Australia’s strongest retail brands, store networks and loyalty programs, there is a significant opportunity to reinvest in our product offering, customer engagement capabilities and further optimise our supply chain to achieve our full potential.

“As part of this review, Myer is exploring both organic and inorganic investment opportunities that align with our strategic focus areas to create value for Myer shareholders.

“It quickly became clear that the idea of a combination of Myer and Apparel Brands offered significant potential synergies and prospects for growth, evidently warranting further examination.”

Premier told the ASX it saw merit in the proposal.

“Myer has indicated that it sees significant opportunity from a combination of the businesses and that it wishes to explore whether that opportunity can be realised as part of a current review of Myer’s operations,” it told the ASX.

“Premier also believes that there may be meaningful opportunity for both businesses from the proposal.

“The proposed combination has the potential to deliver a step change in Myer’s scale and market position, deliver synergies and drive sustainable earnings growth.

“Premier shareholders would benefit given Premier’s existing shareholding in Myer and because Premier shareholders would become shareholders in Myer.”

Premier is already planning to demerge its Smiggle Brand and is exploring a spin-off of its pyjama chain Peter Alexander down the track.