Solomon Lew could break up $3.5bn fashion empire Premier Investments as CEO Richard Murray resigns

Solomon Lew is in line for a potential $500m payday as part of a wider $1.3bn wealth uplift for Premier Investments shareholders if a break-up of his fashion empire goes ahead.

Billionaire Solomon Lew is in line for a potential $500m payday as part of a wider $1.3bn wealth uplift for Premier Investments shareholders if a break-up of his fashion empire is forged to unleash the superior growth potential of its potent retail brands Peter Alexander and Smiggle.

Mr Lew, the chairman of Premier Investments and also its largest shareholder, dangled the prospect of a historic demerger of his ASX-listed empire into three or four parts that could see a number of new companies emerge.

The strategic review, which has brought on board UBS and Arnold Bloch Leibler as advisers, will have a fertile field of retail assets, cash and equity stakes to dish out to shareholders.

Mr Lew has painstakingly built up the company since 1987 when Premier Investments was created as a small multimillion-dollar cashbox.

In a flurry of announcements to the ASX - which included the shock resignation of Richard Murray as the chief executive of its retail arm, Premier Retail, after only two years in the role - Premier Investments revealed a strategic review would now consider a review of its operating and capital structure, including dividend policies and “a separation of the group into two or more distinct entities by way of demerger”.

The obvious scenario was for its high-growth retail brands Smiggle and Peter Alexander, both of which also have been launching in overseas markets, would be demerged from its low-growth portfolio of apparel fashion stores - Just Jeans, Jay Jays, Portmans, Dotti and Jacqui E.

The announcements on Monday also included a trading update with Premier Retail saying it expected full-year earnings of $355m to $357m, up between 6 per cent and 6.6 per cent on 2022, and beating market expectations. Its Premier Retail arm would report total global sales for the 52 weeks ended July 29 of $1.64bn, up 9.7 per cent on 2022.

However, earlier this year Premier Retail reported first-half sales growth of 17.6 per cent and in an update for those results said sales growth for the start of calendar 2023 - for the first six weeks - were up 7.7 per cent.

It is likely that Premier Retail is now witnessing negative sales growth along with other retailers in the sector as consumers rein in discretionary spending.

Meanwhile, fund managers and institutional investors are already licking their lips at the prospects of Mr Lew pulling apart his Premier Investments empire that he began in 1987 but which grew steadily thanks to a $791m jackpot from the sale of its stake in the old Coles Myer conglomerate in 2007 and successful investments in kitchen appliances company Breville.

Shares in Premier Investments leapt almost 13 per cent on the possible demerger news, as investors seemingly ignored the unexplained departure of its CEO, to rather focus on the riches that could come from a break-up of the Lew empire.

Premier Investments chairman Solomon Lew and outgoing CEO Richard Murray, at its Smiggle store in Melbourne’s CBD. Picture: Ian Currie

These riches include not just the higher-growth fashion labels Peter Alexander and Smiggle, which would likely attract a higher earnings multiple if separated from the rest of the fashion portfolio, but also Premier Investments’ $470m in cash reserves, a franking credits pool of $327.2m, a Melbourne office tower as well as equity stakes of $327.1m in Breville and $130m worth of Myer stock.

Some fund managers have a sum-of-parts valuation on Premier Investments of more than $30 per share, which would deliver upon a successful demerger as much as $1.3bn in new value for shareholders. Mr Lew and his family would pocket the lion share given his private company Century Plaza’s 42.43 per cent stake.

WAM Capital lead portfolio manager Oscar Oberg said the demerger proposal was a “fantastic” idea and that he believed that Premier Investments was worth more than $30 per share under a successful demerger and reallocation of retail brands, cash, equity stakes and bloated franking credits.

“Smiggle and obviously Peter Alexander are great retail businesses. There is obviously upside there and then you have the Breville stake, Myer stake and the cash and if that brings more attention to that then that is a good thing,” Mr Oberg told The Australian.

“So we think it is worth well over $30 per share on a sum-of-the-parts valuation and that is why we have always owned the stock.

“Hopefully a demerger will bring valuation upside to their strongest two brands - Peter Alexander and Smiggle - which are international growth stories. We just need more colour from the company and there are a range of scenarios and we might have to wait probably for the results next month to see more.”

Citi analyst James Wang said a demerger could be delineated between the mature apparel businesses and Peter Alexander and Smiggle which have international growth opportunities. While in a note to its clients Morgan Stanley said the potential demerger could highlight underlying value in Peter Alexander and Smiggle, “which are arguably two of the highest quality retail formats in Australia”.

However, Mr Wang warned the demerger could be a negative for the wider apparel business as a key component of Premier’s profitability uplift through Covid was through rental reduction.

But that strategic review that could trigger a demerger will now take place without the advice or guidance of Mr Murray, its once highly acclaimed and celebrated CEO when Mr Lew lured him from JB Hi-Fi in April 2021. At the time Mr Lew pulled off a corporate coup when he announced Mr Murray would leave JB Hi-Fi after 20 years to be the new CEO of Premier Retail, the billionaire’s public company fashion and apparel empire.

However, in those two years Mr Murray has led the group through the ructions of Covid-19 and a slowing economy, especially impacting discretionary spending on fashion.

That poaching of Mr Murray, once celebrated as a major corporate coup, has now ended with a simple resignation and a four paragraph statement also issued to the ASX on Monday.

“Premier Investments Limited today announced that Mr Richard Murray has resigned from his role as chief executive officer of Premier Retail effective 15 September 2023. Mr Murray has also resigned as executive director of Premier effective 21 August 2023,” the statement said.

John Bryce, Premier Retail’s longstanding chief financial officer, has been appointed as interim chief executive officer effective Monday and will continue to fulfil his CFO responsibilities during this time, the company said.

“On behalf of the board I want to express our sincere thanks to Richard,” Mr Lew said in a statement.

“The board accepts and understands Richard’s decision to step down. On behalf of the board and the entire Premier Retail team, we wish Richard well in his future endeavours.” Mr Lew said.

Mr Lew and Mr Murray declined to be interviewed.

Originally published as Solomon Lew could break up $3.5bn fashion empire Premier Investments as CEO Richard Murray resigns