South Africa's Woolworths to buy David Jones

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South African retailer Woolworths Holdings Ltd (WHLJ.J) is set to buy Australia’s second-largest department store David Jones (DJS.AX) for $2 billion, trumping an offer from Australian rival Myer Holdings Ltd (MYR.AX) with a hefty premium.

The deal, the biggest for Woolworths to date, creates a leading southern hemisphere retailer that will benefit from greater scale and a common fashion seasonality, and comes as Australia’s retail market proves increasingly attractive to overseas players.

Resilient consumer spending, fuelled by a strong local currency and record low interest rates have encouraged the likes of Sweden’s Hennes & Mauritz (HMb.ST), and Japan’s Fast Retailing (9983.T), the operator of the Uniqlo clothing chain to set up shop in Australia although acquisitions are less common.

Woolworths, an upmarket retailer, offered A$4.00 per share. That represents a 25 percent premium to its closing price on Tuesday and a 40 percent premium to its close on January 30 when the Myer offer was made public.

“This makes a huge amount of strategic sense, they can afford to pay a high multiple,” said Commonwealth Bank retail analyst Andrew Mclennan.

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“There is going to be big synergies coming from this transaction.”

Myer said in a statement that it would withdraw its so-called “merger of equals” all-stock bid that had not offered a premium and valued David Jones at A$1.7 billion based on Tuesday’s closing price. Myer shares were 9 percent higher in early trading.

Shares in David Jones jumped to match the bid price but later pared gains slightly to trade 23 percent higher at A$3.93.

.Reuters