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Myer plans to refloat on local market -

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Myer plans to refloat on local market

Sue Lannin reported this story on Friday, September 11, 2009 12:30:00

ELIZABETH JACKSON: The department store Myer will refloat on the stock market later this year after
its private equity takeover more than three years ago.

The public float is expected to net the company's owners around $2 billion in pure profit.

Some market analysts say that might be good for private equity buyout kings TPG but it's not a
bargain for investors.

More from our finance reporter Sue Lannin.

SUE LANNIN: It was the week's worst kept secret. Department store Myer plans to relist on the
Australian Securities Exchange. Chief executive Bernie Brookes announced the news this morning.

BERNIE BROOKES: Myer proposes to commence an IPO preregistration process today. This will allow
Myer One members and employees to pre-register their interest in receiving a prospectus for the
Myer IPO.

A prospectus offering Myer shares may be lodged with the Australian Securities and Investment
Commission on or around Monday the 28th of September.

SUE LANNIN: Myer was owned by supermarket chain Coles but it was bought out by private equity firm
TPG for more than $1 billion three years ago.

JENNIFER HAWKINS: I love it. I love it. I honestly have a lot of fun. We're doing something
different all the time, whether it's a new campaign, a launch...

SUE LANNIN: The face of Myer, former Miss Universe Jennifer Hawkins, was also rolled out to sell
the merits of being a shareholder.

JENNIFER HAWKINS: I'm very proud to be a shareholder. Didn't think I would be at this age but my
family are just as impressed and they're like, you know, so (laughs) they would love to be too but
um...

(Laughter)

Yeah, just very proud.

SUE LANNIN: The new owners have turned around the business. They've used in-store promotions,
direct marketing and targeted sales to get results.

Net profit for 2009 rose almost 15 per cent to $109 million and even though retail sales are
flagging, Bernie Brookes is expecting a good Christmas.

BERNIE BROOKES: And first of all the economic indicators that we're seeing are consumer confidence,
certainly spending through department stores, discretionary spending, debt. So I'm not an economist
but we certainly look at those indices as an important leader.

The second is the average item price in our stores and so if that's starting to lift from $50 to
$60 to $70 then we know the consumers are spending with more discretion. We've had a great start to
the outdoor furniture season.

So they're all really good signs for me that Christmas is going to be quite good.

SUE LANNIN: Myer could float for more than $2 billion.

Independent analyst Roger Montgomery says the owners will make a killing but it won't be a bargain
for investors.

ROGER MONTGOMERY: They'll actually make an infinite profit. Because they had all of their money
paid back to them, the equity that they put in, that was all paid back to them in the first year,
they've effectively got the business for free. So any proceeds from the float that go to them
represents pure profit. It's an infinite return on equity.

SUE LANNIN: Why should we be surprised? Isn't that what private equity does? It takes damaged
businesses and turns them around and makes a big profit and walks away.

ROGER MONTGOMERY: Well I think the interesting thing, rather than envy the private equity guys for
making so much money, the interesting thing is to look at why the previous management of this
particular business weren't able to achieve exactly the same thing. Clearly it was humanly
possible. They didn't do it - why was that?

SUE LANNIN: What's likely to be the offer price for the shares?

ROGER MONTGOMERY: Well nobody really knows that at the moment. We don't know how many shares will
be issued and we don't know what price they will be. There's some speculation about that, that the
total price of the business might be $2.5 billion. Given that it's got $400 million of debt you
would say that there's probably $2 billion of equity that's going to be on offer.

Basically all of that amount of money will go to the vendors and it's a little bit higher than my
estimate of what the business is worth.

SUE LANNIN: So do you think it's a good buy for potential investors?

ROGER MONTGOMERY: We'll need a bit more information about its performance after it's listed to know
what it's truly worth but it looks to me as though it's not a bargain.

ELIZABETH JACKSON: Independent analyst Roger Montgomery ending that report from Sue Lannin.