Following the buyout of Pacific Brands recently by a US-based private broker, Deutsche Bank has highlighted that Harvey Norman and David Jones are the next probable takeover targets.
In its industry update, Deutsche Bank said given the extensive weakness in share prices in the retail sector the candidates that would deliver “a satisfactory return to a potential financial buyer” are Harvey Norman, David Jones and Myer.
However, it notes that a potential exit strategy for Myer could be problematic for two mains reasons – the company is heavily reliant on the rollout of new stores which could deter a potential buyer given recent comments by management that floor space needs to be rationalised and the group has only been on the public market for a short period of time and has underperformed since the IPO which could make a potential exit difficult.
Deutsche Bank also looked at JB Hi-Fi but said it is unlikely to attract any interest because of its “less attractive returns on offer as well as the structural uncertainty facing the consumer electronics category globally”.
At the same time, Billabong’s high debt levels and deferred acquisitions consideration payments due over the next five years mean a transaction is unlikely to stack up for a potential buyer, according to Deutsche Bank.
“However given the recent interest in the sector and the strong brands, there is always the possibility of an approach from a trade player,” the Bank said.