David Jones Ltd., Australia’s second-largest department store owner, said a U.K. private equity fund withdrew its A$1.65 billion ($1.69 billion) bid, causing shares to reverse most of its biggest gain in 17 years.
EB Private Equity withdrew the bid today, stating that “recent publicity around its proposal has made it difficult to proceed,” the Sydney-based David Jones said in a statement. The stock declined the most since March 21 to A$2.33 at the close of Sydney trading, erasing 79 percent of the previous session’s gain. The S&P/ASX 200 index rose 0.9 percent.
Analysts at Nomura Holdings Inc. and Macquarie Group Ltd. began questioning the credibility of the offer soon after it was announced on Friday. David Jones has become the subject of takeover speculation after a 47 percent share slump last year and as slowing consumer spending prompted it to forecast its smallest annual profit in six years.
“It all looked very strange to me and it still looks very strange,” Tony Wilson, an analyst at Evans & Partners in Melbourne who rates David Jones negative, said by phone. The board “have a duty to disclose but do they have to disclose their doubts as well?” he said.
Announcements regarding the proposed bid were made to ensure that “there was not likely to be information in the public domain that would lead to trading based on a false market,” David Jones said in a statement to the Australian stock exchange after Sydney trading had closed today. The company had not deemed as material approaches from EB that started with a letter received May 28, the company said in response to questions from the exchange.
“We made an announcement because of the risk that the media was going to run the story,” Helen Karlis, a Sydney-based spokeswoman for David Jones, said by phone today prior to this evening’s statement. “Telling shareholders to act cautiously was a signal to the market to please be careful.”
Andre Khoury, a Sydney-based spokesman for the Australian Securities and Investments Commission, the nation’s markets regulator, declined to comment when asked whether it was investigating the circumstances around the bid.
EB Private Equity had said it would lead a group providing $850 million in equity, the retailer said in a June 29 statement. The offer would also include $450 million of debt from a syndicate of banks and investors, and $450 million in residual equity for existing David Jones shareholders, the retailer said in the statement last week.
There wasn’t enough information available about EB Private Equity for David Jones to evaluate the approach, the company said. The company isn’t listed on the U.K.’s register of companies.
A bid of A$1.65 billion valued the company’s 529 million shares at A$3.12 each, according to data compiled by Bloomberg. That was a premium of 38 percent to the stock’s June 28 close.
Disclosure rules under Australian corporate law meant that David Jones was obliged to announce the bid after details emerged on a U.K. blog, Simon Marais, chairman of shareholder Allan Gray Pty., said by phone from Sydney. The company’s statements expressed doubts about the offer, he said.
“What more can they say?,” Marais said. “You can’t say: ‘I don’t think it’s real.’ That’s likely to upset a potential bidder if you say things like that.”
Allan Gray is the retailer’s third-largest shareholder with a 5 percent stake, according to data compiled by Bloomberg.
In a note June 29, Nick Berry, a Sydney-based analyst at Nomura, questioned whether the offer was a “bid or faux-bid” and said the bank was “not so sure” the approach was genuine.
“The credibility of this offer may be lacking,” Sydney-based Macquarie analyst Rob Blythe wrote the same day.
EB’s offer is a “good bid” and the company would like to “engage further” with David Jones, EB Chairman John Edgar said yesterday, according to an interview with the Australian newspaper published today.
A telephone message left outside office hours at the registered address of EB Private Equity’s website wasn’t immediately returned. A separate message left on a mobile phone number listed in regulatory filings as a contact for one of Edgar’s other companies wasn’t returned.