Cash sweetener from Myer could sway DJs board: Zahra

Myer has denied reports it is considering adding a cash component to its $3 billion scrip-based merger proposal, however the divergence of the two companies’ share prices has led to increasing speculation that Myer will need to increase its offer in order to execute a deal.

Mr Zahra today indicated that a cash boost to Myer’s offer of 1.06 of its own shares for every DJs share could capture the attention of the board, which under previous chairman Peter Mason rejected the all-scrip offer late last year.

“It would have to be assessed on its own merits, but it’s really a question for the board,” Mr Zahra said.

But the value of any deal would need to be weighed against DJs’ own assessment of the value it can create for shareholders, he said.

“It doesn’t take away the fact that we have our head down and are reviewing our business and the particularly synergies that Myer put forward, so we would still need to do that because we need to assess any offer in line with what the future could be and what our own strategic plan might bring,” he said.

Myer has said the merger could save the two companies a combined $85m a year in operational costs, however DJs has said merger studies by its advisers Port Jackson Partners in 2011 identified savings of only half that amount.

Speaking after a launch event for menswear label Hugo Boss, which became exclusive to DJs as a department store brand in February, Mr Zahra said a merger would mean the two companies no longer had to compete for exclusive brands.

“In a merged entity you have less argy-bargy between the department stores ... both department stores are clearly quite differentiated, but it becomes easier to navigate which brand goes to which department store,” he said.

“In most cases, the brand is aligned to the relevant consumer base of the relevant department store, but often a brand can negotiate better commercial terms by going to their competitor, and certainly in a merged entity that would not be occurring — so in some ways the customer would be better off, that’s one positive.”

However Mr Zahra conceded the competition regulator could have some concerns over the pricing impact of reduced competition between the department stores.

“It would be up to the ACCC to assess it, but it’s more of an issue where there’s brands in both stores, because when a brand is exclusive there’s less discounting, you don’t have to respond to your competitors,” he said.

Mr Zahra also opened up about his reasons for announcing plans to quit last year — a decision he said at the time was prompted by exhaustion but was widely believed to stem from a bitter dispute between himself, then-chair Peter Mason and two other directors.

“I said it was for personal reasons, and when I was pushed for a response I was exhausted, and that’s true — I was exhausted by what was going on at the time,” he said.

Mr Zahra renewed his contract with DJs last month following the resignation of directors Leigh Clapham and Steve Vamos, and the appointment of Gordon Cairns as Mr Mason’s successor.

However he has since refused to comment on the reasons for his change of heart or explain why his claimed exhaustion was no longer an issue.

“I’m still physically and mentally fit — I’m 47 and love what I do, it doesn’t change any of that for me, so in a very different environment I think the company and equally myself are set up for success,” he said.

The comments are the closest Mr Zahra has come to confirming that friction between himself and the directors was behind his threat to leave