David Jones gets takeover offer: Why our big names are up for grabs

It’s a sign of the times. The iconic retail chain, David Jones, announced today that it has received a takeover bid from a mysterious entity in the United Kingdom.

The David Jones board isn’t sure what to make of the bid, which values the company at $1.4 billion.

“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,” David Jones said in a statement. ”In the meantime, the directors recommend that shareholders treat related market comment cautiously.”

Fairfax newspapers report the bidder is EB Private Equity, and say they’re hearing “rumours” EB has teamed up with Lang LaSalle, the global real-estate management firm, and Chalkhill Partners, a London-based boutique financial services firm established in 2009.

The EB website describes it as a “Luxembourg and UK real estate and real estate related investor, developer and private equity partner”. It says it has an overseas focus, and tends to invest in North America, Asia and Africa. A Factiva search yields no previous mentions in the media.

David Jones’ shares soared 20% on the announcement.

Setting aside the strange bidder – a non-incorporated entity that has little public information available – the bid flags a significant moment for our economy: Our big names are up for grabs.

When values on the share market are at rock bottom (we hope), it is time for the winners to scour the world for bargains.

And private equity funds have cash.

For example, Quadrant Private Equity has $1.7 million under management, of which it has $500 million left to invest. The Riverside Company has $3.4 million under management globally, and recently told LeadingCompany it was keen to boost its investments in Australia. We recently profiled Advent Capital, which has $100 million in the bank and is expecting another $200-$300 million to invest before the end of the year.

It’s buying time.

Struggling companies are typically undervalued, even when they have profits, because it is hard to see how they can solve their problems. Media companies, retailers and manufacturers are some of the companies struggling to adjust to a new economic order and the new business paradigm of the web.

In some cases, companies might be more valuable split up, as the media baron Rupert Murdoch’s demerger decision illustrates. One analyst has suggested the bid could also set loose a flurry of bids for other domestic retail stocks. It’s a good time to expand by acquisition or merger, and there is a lot of it going on, says David Knowles, a partner with mid-market accounting firm, Pitcher Partners.

On one level, it is good news. No one likes to buy in a falling market; the bid could suggest a David Jones won’t fall much further. On the other hand, a bid for Billabong earlier this year valued it at $3.30 a share and now it is worth a dollar, as the analyst has pointed out. We are not safe, collectively speaking.

But for shareholders in companies with bottoming share prices, the bid is a glimmer of hope. It may provide the opportunity to sell at a premium, or signal the bidder’s ability commitment to rebuilding the retailer’s business and its value.