INVESTORS in department store chain David Jones didn't know whether to laugh, cry or get even at the board's handling of an unsolicited takeover approach then withdrawal by obscure entity EB Private Equity.
The takeover offer, which was almost Seinfeldian in that it was a takeover about nothing, has been described as a "farce" in an afternoon note from Goldman Sachs. Others used more colourful language to describe what will go down as one of the more bizarre takeover offers and withdrawals.
For some, the David Jones announcement on Friday of a takeover proposal has made them a lot of money as shares jumped 17 per cent at one stage. For others, it is a case of feeling short changed. For this reason the regulators and class action lawyers will be trawling through the timeline of events that led up to Friday's and Monday's announcements, including a trading halt, to ensure the company has not accidentally misled the market through negligence by not issuing a strong enough caution.
There is also a strong case for corporate regulator ASIC to search the David Jones share registry to ascertain whether or not any unusual trading has taken place since EB Private Equity first posted a letter to David Jones chairman Bob Savage on May 22. As part of its job to ensure market integrity ASIC will need to rule out the current market speculation that this was an elaborate case of window dressing by some mischievous traders on the last day of trading for the 2012 financial year.
If David Jones didn't have enough on its plate battling a flawed online strategy, shrinking margins and a fragmenting customer base, it will now suffer credibility issues.
The incident raises the question whether the board and its advisers could have handled themselves better when it notified shareholders that it had received an unsolicited takeover approach. The question that class action lawyers will look at is whether the board should have made a stronger warning and released the letters it had received from EB Private Equity to ensure full market transparency.
The is no doubt the company issued cautions to shareholders on Friday but whether that is enough to keep the class action lawyers at bay, time will tell. The brutal reality is Savage received a letter on May 22 from EB Private Equity outlining its intentions. In that letter it said: "Our formal offer for these assets and stocks in total is AU$1,5200,000." It said it was an unconditional offer subject to due diligence and the acceptance of this offer by the David Jones board within two weeks of the date of the letter. It was signed John M Edgar, chairman of EB Private Equity.
The ASX statement released by the board on Friday morning was vague and carried a number of qualifications but it wasn't enough to keep the share price from rocketing 17 per cent before closing 14 per cent higher. In its initial statement to the ASX, David Jones didn't release the name of the suitor, nor did it reveal it had received an initial approach on May 22 or a second approach on June 27. Instead it said it was a non-incorporated UK entity of which no usual public information was available. "The directors do not believe they currently have relevant information to enable them to qualify or value the approach but, should this change, will advise the market accordingly." It said it recommended that shareholders treat any related market comment cautiously.
It was only after a British blog reported the identity of the suitor and the offer price that David Jones filed another note to shareholders. By this stage there were lots of rumours that it might be a hoax.
The board has sat on this knowledge for more than a month. What the media revealed over the weekend was that EB Private Equity's domain name was registered to an address in Newcastle and a search of Google maps showed only mail boxes at that address.
Given so much mystery around EB Private Equity, questions will be raised as to whether David Jones should have gone into a trading halt on Friday rather than leaving it until Monday when the share price started falling on fears the offer would evaporate.
It was during the trading halt that investors were informed that EB Private Equity had withdrawn its offer due to the publicity it had received. Not surprisingly, the stock closed down 10 per cent after the trading halt was lifted.
It is a sad and embarrassing tale for David Jones but what it has done is focus the market on the break up value of David Jones as a property play. David Jones has some good properties on its books at an estimated $450 million. Some suggest these properties could be worth $800 million. Even though John Edgar looks to have been a big talker with no backing, it has at least put the spotlight on the value of David Jones in the hands of private equity or a trade buyer who can sell the property, lease it back without having the headache of a big capital gains tax bill.
David Jones will be one of many retailers that will face takeover scrutiny. Others believed to be in the sights of predators include Billabong and Pacific Brands. Most retailers in Australia have missed the boat in terms of embracing online competition and are suffering the consequences. Overseas competitors and private equity operators who need to spend some of their pre-committed funds this year are on the prowl.
Frequently Asked Questions about this Article…
What happened with the David Jones takeover approach that made headlines?
An obscure suitor calling itself EB Private Equity wrote to David Jones’ chairman outlining an unsolicited takeover proposal. The announcement and later withdrawal of that approach triggered sharp share volatility, press scrutiny about the suitor’s credibility, and questions about how the board handled the disclosure.
Why did David Jones shares jump about 17% and then fall after the offer was withdrawn?
The initial ASX statement about an unsolicited approach sparked optimism and pushed the share price up as investors speculated about a takeover. After media scrutiny raised doubts about the suitor’s identity and credibility, and EB Private Equity withdrew the offer during a trading halt, the stock fell sharply — closing down after the halt was lifted.
Could regulators or class action lawyers get involved after the David Jones takeover saga?
Yes. The article says ASIC may review the share registry and trading to rule out unusual activity, and class action lawyers are likely to examine whether the board issued sufficiently clear warnings or should have released the takeover letters to ensure market transparency.
What is a trading halt and how did it affect investors during the David Jones episode?
A trading halt temporarily suspends buying and selling of a stock to allow an orderly release of significant information. In this case, market speculation built before the halt; during the halt investors learned the offer had been withdrawn, and the share price dropped when trading resumed.
Why did the article describe EB Private Equity as an 'obscure' suitor and why does that matter to investors?
EB Private Equity was described as obscure because public information was limited — its domain pointed to a mailbox address and the company wasn’t a well-known incorporated bidder. That lack of transparency raised questions about the offer’s seriousness and underscores the risk of reacting to takeover rumours from unknown parties.
How did the takeover approach put a spotlight on David Jones’ property assets?
The episode focused the market on David Jones’ break-up value, noting the company’s property portfolio was estimated at about $450 million and some suggested those assets could be worth up to $800 million — information that can attract private equity or trade buyers interested in property-led deals like sale-and-leaseback arrangements.
Which other Australian retailers did the article say might face takeover scrutiny?
The article named Billabong and Pacific Brands as other retailers believed to be in the sights of potential predators, and noted many Australian retailers are vulnerable because they have fallen behind in embracing online competition.
What should everyday investors take away from the David Jones takeover rumours and share volatility?
Treat takeover rumours and sudden market moves cautiously: look for verified company announcements, be aware of volatile short-term price swings, understand that obscure suitors may not be credible, and expect regulators or legal action to follow if disclosure appears inadequate — all of which can affect investment risk and timing.
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