Solomon Lew’s Premier Investments, Myer tie-up deal talk swirls ahead of results

Investors are anticipating Solomon Lew’s Premier Investments’s results, which could announce a demerger or even a tie-up with rival Myer to create as much as $1.44bn in extra value for the billionaire’s fashion empire.

Premier Investments chairman Solomon Lew addresses shareholders. Picture: David Caird

Investors in Premier Investments, led by its largest shareholder Solomon Lew, could be sitting on more than $1.44bn in potential uplift if the nation’s most successful retailer decides to radically restructure his listed fashion empire that could include a demerger of its high-growth fashion labels.

One theory also now discussed in the market is that when Premier Investments unveils its first-half results next week it could announce the sale of its portfolio of fashion and apparel brands – Just Jeans, Portmans, Dotti, Jay Jays and Jacqui E – to Myer in a cash or scrip deal.

This would see Premier Investments maintain direct ownership of the higher growth retail brands Smiggle and Peter Alexander while also allowing it to significantly increase its stake in Myer, currently at 28.79 per cent, as it accepts shares in Myer for selling it the other fashion brands it owns.

A backdoor listing of these fashion chains through Myer would be the first challenge for anointed Myer executive chairman and former Qantas loyalty program boss Olivia Wirth. Starting her role on June 4, when current Myer boss John King departs, as executive chairman she could fast-track a decision through the board on any proposal put to her by Premier Investments.

Then there is further speculation that Mr Lew will announce a takeover of Myer, swallowing up the department store chain which only has a market capitalisation of $682m against Premier Investments’ value of $4.83bn.

On Tuesday investors will await any developments on this when Premier Investments unveils its first-half results which is expected to show earnings of around $200m, and which has already been preguided to the market.

Some analysts believe Premier Investments could overshoot this guidance given strong results among key retailers for the December half and a stronger Myer result.

“We lift our EBIT forecasts around 2 per cent to reflect Myer’s results,” said Jarden analyst Ben Gilbert.

“Premier Investments is a well-run business, with proven resilience through macro volatility. With recent data from Westpac suggesting some improved spending into March, albeit fashion is volatile, with footfall for Premier Investments mixed but improving into March … we forecast 2 per cent second half retail sales growth for Premier Investments vs consensus of up 0.8 per cent.”

In terms of the current strategic review being undertaken at Premier Investments, which could look at a demerger, sale of some businesses or part merger with Myer, Mr Gilbert said a sum-of-the-parts valuation for Premier Investments could be worth as much as $39 per share against the current share price of $30. This would mean an uplift of more than $1.4bn in the market valuation of the company.

“We do not believe the market is currently pricing in potential valuation upside from a demerger, with the implied valuation for core apparel brands of around $463m at current levels. We estimate on a sum-of-the-parts basis Premier Investments could be worth more than $39 (per share) based on peer multiples.”

One of the options before the Premier Investments board is the sale of its fashion and apparel brands into the Myer structure, that could include an equity component, and in some ways similar to the $8bn deal last year to backdoor Chemist Warehouse into Sigma Healthcare.

“We see three potential options, being no change, demerger of Smiggle and/or Peter Alexander or demerger of the core fashion brands via sale or equity vend-in similar to Chemist Warehouse/Sigma,” Mr Gilbert said.

Citi analyst Adrian Lemme noted in his preview report for the Premier Investments results that a merger with Myer could create synergies of at least $25m reflecting sales and margin uplift from Premier’s own branded products being placed into Myer, scope for expanded private label in Myer and supplier term harmonisation, and distribution centre capacity harmonisation and head office cost reduction.