The Myer Holdings Ltd (ASX: MYR) share price has jumped 17% in response to a plan to buy the apparel brands of Premier Investments Limited (ASX: PMV).
Myer is an upscale department store chain business and Premier Investments owns various retail businesses, including Apparel Brands which owns Just Jeans, Jay Jays, Dotti, Portmans and Jacqui E. Apparel Brands has 717 stores in Australia and New Zealand and made $845 million of revenue in FY23.
Myer’s bold plan
The department store business has outlined a plan to increase its profitability and “drive sustainable earnings growth”. A strategic review aims to enhance and expand its private label and exclusive brands portfolio.
Under the proposed deal, Myer would buy Premier’s Apparel Brands business in exchange for issuing new Myer shares to Premier Investments.
The businesses would be “contributed in proportion to their maintainable EBIT” (EBIT explained), before AASB16, and on the same enterprise valuation to EBIT (pre-AASB16) multiple. Apparel Brands would be contributed together with sufficient cash to ensure a “consistent capital structure for each of the two businesses and provide Myer with capital to invest in growth initiatives”.
In other words, the companies will come up with a fair price for the deal, based on the EBIT generation.
Premier Investments would then distribute all of its Myer shares to Premier shareholders, so Premier would cease to own Myer shares.
An independent board committee, led by Myer executive chair Olivia Wirth, has been formed to consider the proposed combination with Apparel Brands. The discussions are still preliminary and exploratory in nature, with no certainty a transaction will happen.
Myer continues to review its business and strategic direction.
Myer said this deal could lead to significant revenue and growth opportunities, potential cost synergies, a greater capacity to invest in the combined business and the ability to leverage its MYER One loyalty program and e-commerce platform across an enlarged customer base.
Premier response
The Premier Investments board thinks the proposal warrants “further consideration”. Myer and Premier Investments have agreed to conduct due diligence on each other and discuss potential transaction terms.
Premier said it’s continuing to work towards demerging Smiggle and it’s exploring the demerger of Peter Alexander.
Final thoughts on the Myer share price and Premier Investments
The market seems to be a fan of the deal considering the Myer share price has jumped 17% and the Premier Investments share price is up 3%.
I think both companies would be stronger after this proposed deal, though I wonder what the Premier Investments business will look like if it divests both Smiggle and these Apparel Brands businesses.
I’d rather buy Premier Investments shares than Myer shares right now, but there are other ASX dividend shares that could appeal more than others.