David Jones has recommended that shareholders vote in favour of a $2.15 billion takeover bid from South African based retail group Woolworths, which would see the suitor acquire all of the retailer's outstanding shares at a price of $4 cash per share.
In a statement, David Jones said it had entered into a scheme implementation deed with Woolworths, which will also see shareholders on the register as at April 10 receive the already-declared interim dividend of 10c.
The retailer said the price of $4 represents a 25.4% premium to yesterday's closing price of $3.19 and implies a market capitalisation of $2.149bn.
The move spurns rival Myer's nil-premium offer and likely puts an end to the long-running discussions regarding a merger between the two stores.
The deal requires the approval of the Treasurer, under Australia's foreign investment rules, and on Woolworths' end it requires the go-ahead from the South African Reserve Bank, as well as Woolworths shareholder approval.
David Jones chairman Gordon Cairns said the board considered a number of alternatives before concluding the Woolworths bid was in the best interest of shareholders.
The alternatives included "realising the value of the freehold properties owned by David Jones; or pursuing a merger with Myer in accordance with its proposed terms," he said.
"This is a compelling proposal which represents a significant premium to not only our intrinsic value but also to broker valuations and to recent share prices," Mr Cairns said.
"It represents a substantial earnings multiple."
David Jones chief executive officer Paul Zahra said the offer was an "endorsement of our Future Strategic Direction Plan and our management team."
The retailer said it will appoint an independent expert to prepare a report on whether the proposal is fair and reasonable and in the best interests of David Jones shareholders, which is expected to be distributed to shareholders in late May 2014.
David Jones is being advised by Gresham Advisory Partners Limited, Macquarie Capital (Australia) Limited and Herbert Smith Freehills.
The deal is expected to go ahead in mid July.
Woolworths to use DJs to boost scale
Woolworths chief executive officer Ian Moir said the group recognised David Jones as a "very similar business, closely aligned in terms of our target markets and our values," and expects that the deal will see it become one of the 10 largest department store operators in the world.
"The combination will create a leading southern hemisphere retailer with meaningful scale, able to leverage common fashion seasonality with enhanced sourcing capability.
"Woolworths will bring extra capability, financial strength and significant scale to accelerate these strategies and offer a greatly enhanced value proposition, delivering on-trend product within the most exciting and innovative shopping experience in the market."
In South Africa, Woolworths operates a chain of retail stores offering a selected range of clothing, food, homeware, beauty and financial services under its own brand name.
The group also owns 87.9 per cent of Country Road Limited, the clothing and homeware retailer listed on the ASX, that is already stocked in David Jones stores.