The Myer Case
This is my personal opinion on the Myer Holdings case. You should be able to decide how to manage your own finance and/or seek professional advice. All the information I present here is available from several public sources.
This case is definitively attracting attention of the Australian media, most likely because the marketing involved in the campaign (including the former Miss Universe, the Myer brand ambassador Jennifer Hawkins).
Some people mention there is a ’stag profit’ on the price mentioned (but not established yet) when lauching the shares for ASX. Besides, I have to agree that Myer Holdings have a better than average corporate success history, with ups and downs since founded as The Myer Emporium Limited in 1900.
In 2006 the company was sold (including its major building in Melbourne) to a consortium of private equity firms, including the TPG and Blum Capital as well as the Myer family (after the split from the Coles group). The price? 1.4bn.
The takeover (see ‘corporate raiders’) of listed companies become very popular. Similarly to the Debenhams case (a UK-based department store), which was bidded by TPG -the same from consortium that now controls Myer and CVC Capital Partners. 1.7 bn pounds was the price. Debenhams had a massive debt which was covered (and renegotiated) by the consortium.
The takeovers applied a lot of short and medium-term strategies (cash maximisation, high leverage in and outs, management ownership, marketing extravaganza etc) which undoubtedly make the revenue progressively increase, but with the shadow of the debt growth.
In 2006, TPG and CVC decided to re-float Debenhams in the London Stock Echange at 195p a share. They reached the market capitalisation of 1.7 bn pounds (price of when it was acquired) but now they had 1.2 bn pounds of debt and little property (total enterprise value was 2.9bn pounds compared to the 1.9bn pounds from earlier).
Due to all the debt with banks/suppliers the price halted for less than 25p a share. Nearly Christmas 2008 the stock hit the bottom. It was a near-death experience. They recovered for 80p a share but the ‘modus operandi’ of the private equity is clear.
In fact, TPG, CVC and Templeman almost tripled their original investment (Templeman made a reported profit of 41m pounds from the float).
If you research in depth about the Debenhams case you will understand that, in the long-term the Myer Holdings shares should be avoided, and if not, analysed carefully.
Please refer to the respective disclaimer @ the first post on the blog for details on the basis on which you may use the contents of this page.