14 March 2006 

MELBOURNE: Australia's largest retailer, Coles Myer Ltd, said it would sell its Myer department store chain to a consortium led by private equity firm Newbridge Capital for $A1.4 ($NZ1.6 billion), pushing its shares up 4 per cent.

The consortium, which also includes Newbridge affiliate Texas Pacific Group and the family of Myer's founder, will buy both the 60-store business and a flagship Melbourne property that sprawls across part of two city blocks in the city's retail area.

Myer is an Australian retail institution founded in 1900 by Sidney Myer, who arrived as a penniless Russian immigrant.

"It is a great result, a great price, and I think higher than most were expecting," Constellation Capital Management analyst Megan Fischer said.

The sale of the underperforming department stores will allow Coles Myer to focus on its grocery and liquor business, which is lagging rival Woolworths Ltd.

"Our decision to divest has been driven by the board's belief that both our core food and liquor business and Myer will perform better separated," Coles Myer Chairman Rick Allert said in a statement.

Newbridge became the favourite last week to buy the stores, particularly after a rival bidder, South Africa's Edgars Consolidated Ltd. , dropped out of the race.

AdvertisementAdvertisementMyer was bought by Coles in 1985 in a $A1 billion deal, but the Myer stores sat uneasily within the larger group, in which the Myer family has a stake of between 3 and 5 per cent. The family will hold less than 10 per cent of the separated Myer business.

"Coles Myer is the only retailer in the world which has tried to combine full-line department stores and supermarkets," Allert said.

Coles said it would make a $A700 million profit on the sale, and proceeds would be used to fund expansion and an improved performance from food and liquor. It would also consider a return of capital to shareholders.

Newbridge is the Asian-Pacific investment arm of Texas Pacific Group, which was part of a consortium that bought UK department store Debenhams in 2003 for £1.72 billion ($NZ4.68 billion).

Debenhams last November posted a doubling of its annual pre-tax profit, and there is speculation that the retailer could be refloated on the London stock market this calendar year.

Texas Pacific Group was also part of a successful bid last year for US upscale department store chain Neiman Marcus.

"We look forward to drawing on that experience and bringing those skills to bear in Myer," Newbridge Australia and New Zealand head Ben Gray told a news conference.

Newbridge said Bill Wavish, former finance director and director of supermarkets at Woolworths, would join Myer as executive chairman.

Myer posted a loss in fiscal 2002 as it battled competition from up-scale department store company David Jones Ltd. , discount variety stores and specialty retailers.

Earnings before interest and tax (ebit) were $A38.7 million in fiscal 2005 on sales of $A3.1 billion, but fell 46 per cent from the previous year. Myer contributed about 3 per cent to underlying retail ebit for the Coles Myer group.

Myer's retail margin of 1.25 per cent compared with a David Jones department stores margin of 4.1 per cent.

"Clearly Newbridge believes they can focus that business and get much higher profit margins," Shaw Stockbroking analyst Scott Marshall said.

Coles Myer last year appointed advisers Carnegie Wylie & Co to study whether to sell Myer in a trade sale, spin it off in a separate listing or retain the business, which mostly occupies leased sites.

It called for separate bids for the department stores and the flagship central Melbourne property that it owns. The property alone was expected to bring about $A300 million to $A400 million.

The Newbridge consortium, advised by Goldman Sachs JBWere, beat rival bids by Edgars Consolidated, CVC Asia Pacific, and on the property side bids from CFS Gandel Retail Trust and Lend Lease Corp. Ltd..

David Jones has said it would like to team with a successful buyer to acquire 5-12 of the Myer stores in areas where it was not represented, but Gray said Newbridge intended to continue with the existing Myer portfolio.

Shares in Coles Myer, which will consider a new company name in the next few weeks, added as much as 4.5 per cent to $A10.42 in morning trade before easing to $A10.39, while David Jones shares slipped 2.0 per cent to $A2.96 and Woolworths shares added 1.4 per cent to $A19.18.