The chances of Premier Investments continuing with its demerger plans for Peter Alexander and Smiggle anytime soon have been dampened by Myer’s issued plans to merge with Premier’s Apparel brands - namely Just Jeans, Portmans, Dotti, Jay Jays and Jacqui E.
This is according to analysts at Australian financial institution Jarden, who see a high probability of the Myer (ASX: MYR) merger progressing given strategic upsides for both parties.
Under the proposal, Premier’s (ASX: PMV) five apparel brands would be acquired by Myer for shares proportionate to both businesses' operating profit, which Jarden estimates to be $100 million for Myer and $123 million for Premier’s apparel brands respectively.
The new Myer shares issued to Premier, along with its current Myer stake of 31.8 per cent, would be distributed to Premier shareholders. Jarden analysts expect Premier shareholders could end up owning around 70 per cent of Myer.
“The proposal is early stage, non-binding and exploratory in nature,” Jarden analysts wrote. “However, given the strategic upside, we see a high probability of a deal progressing.
“While plans for a potential demerger of Smiggle and PA remain, we envisage these being delayed if this proposal was to succeed.”
There a handful of expected synergies from the potential merging according to Jarden, including sourcing, retail stores, data and sales.
Jarden believes that Premier’s gross margin across apparel is around 58 per cent, with Myer around 38 per cent - suggesting a material opportunity for Myer to leverage Premier Apparel’s sourcing across the department store’s own brand portfolio as well as rolling out the new apparel brands in-store and online
Meanwhile, through rationalising the specialty network as it expands its brand presence within Myer could allow Premier's Apparel brands to potentially reduce or renegotiate part of its specialty network of around 710 stores.
There is also potential in leveraging the Myer One loyalty program across Premier’s Apparel portfolio - which does not currently have a loyalty program.
Jarden analysts estimated the market is currently implying a circa $700 million valuation for Premier’s apparel business.
“The above said, we need additional information, notably the pre-AASB16 EBIT figures for both MYR and PMV Apparel for FY24E, which will give a clearer picture of potential equity issuance.
“Furthermore details of potential synergies, potential capital transferred (given differing working capital cycles), management structures and governance principles will be needed.
“Overall, we see significant value in the proposal for PMV in that MYR should be set to extract material synergies and PMV would be a cleaner vehicle that should re-rate via clean exposure to higher growth Peter Alexander (PA) and Smiggle brands as they embark on accelerating global roll-outs.”