The withdrawal of a $1.65 billion takeover bid for national retailer, David Jones, has bought to a close one of the most bizarre chapters in the company's 174-year history.
In our step-by-step analysis of the bid -- made by a little-known private equity company, EB Private Equity -- we unravel the complexities facing David Jones chair Bob Savage, his board and management.
The takeover bid
On May 28, the David Jones board received an email, dated May 22, with an unconditional but incomplete bid for the company. According to The Australian Financial Review, David Jones chairman Bob Savage thought the deal "didn't feel right". He emailed the bidder asking for more information. It would be a month before he received any response.
The bidder was John Edgar, representing EB Private Equity, a private equity group that claims to have a focus on property.
The David Jones board was faced with three possibilities: saying nothing until further details were forthcoming; making an announcement; or going into a trading halt.
Usually, you would expect the board to quickly make an announcement about a bid, says the chief executive of Chartered Secretaries Australia, Tim Sheehy.
"My hunch is that they hesitated because they had doubts about the legitimacy of the bid," he says. "In a perfect world where a bid came through a well-known, recognised investment bank, and was legitimate, they would have to disclose relatively quickly. This one didn't seem bona fide from the start, and they set about investigating."
The David Jones board was under no obligation to reveal the bid by EB Private Equity, says professor Ian Ramsay, director of the centre for corporate law and securities regulation at Melbourne University. Ramsay was responsible for the review that led to changes in corporate law in 2004 in the wake of corporate collapses such as HIH insurance in 2001. "The ASX requires under listing rules disclosure of 'material' information [that will affect the share price], but there is a carve out ... and that includes an incomplete proposal," he says.
On June 28, a day before David Jones finally revealed the offer, EB Private Equity responded to Savage's request for more information. The email contained few new details about the bidder, but did update the offer to $1.65 billion – a 40% premium on the company's then market value.
On Friday, David Jones was forced to show its hand.
A blogger in Newcastle, England, began calling media outlets about the bid. Many of them would have been sceptical. The blog was only recently established and quite obscure.
It was eventually picked up by a reporter at Bloomberg, who called David Jones to ask whether there was a bid.
Does this mean that Australian listed companies now have to consider their information is public if it is being written about by an obscure blogger in another country?
Ramsay says that is not the precedent set by the events. It was the fact that the blogger contacted mainstream media to promulgate the story, "It was still incomplete, but at that stage David Jones is concerned that the information has leaked into the marketplace," Ramsay says.
At this point, Ramsay says, the David Jones board rightly issued its first statement; David Jones, being well advised, did not want to be accused of sitting on material information.
The first statement
In its brief first statement to the market, the company said the approach was made by a non-incorporated entity in the United Kingdom about which ''no usual public information is available''.
It read: "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 its statement. ''In the meantime, the directors recommend that shareholders treat related market comment cautiously.''
At the time, David Jones did not release the name of the bidder or the amount of the bid. The retailer's shares jumped 20%.
Whether or not to disclose the bid was always going to be a difficult call, analyst Peter Esho from CityInvest tells LeadingCompany. "If they chose not to disclose it, there would have been the possibility of rumours flying around the market and the financial repercussions around that," he says. "I think they chose to disclose but make it very clear from the beginning that the party making the bid had many questions to answer. I think they did the right thing."
However, the statement had less than all the information the retailer's board had at that date.
The second statement
Later on Friday, the board issued another statement as more information came out in the media. The bidder was named and the price revealed at $1.65 billion. David Jones board stated that it had revealed everything it knew about the approach.
Ramsay says this was "seriously inadequate", but the board made it clear that it was all the information that it had. "No further details in relation to the proposal have been provided," the statement read.
By the end of Friday, David Jones' share price finished up 14.6%, after peaking 20% higher than Thursday's close. It was the highest one-day gain for the retailer in 17 years.
The trading halt debate, and the unravelling of the bid
Within four days of the bid becoming public, journalists had tracked down the bidder, his location (a post office box), other apparently strange business ventures in which he had been involved including reported claims of selling a $5.3 million bottle of 'halal' vodka. After the flurry of media attention the bid received on Friday, John Edgar then contacted the newspapers.
Asked how the media could discover more in four days than David Jones could discover in the month since the first offer, Ramsay says that the bidder began giving interviews when the story broke.
Edgar had, but this time, approached a public relations agency to put his own slant on the portrayal of the deal.
And he got his wish, it seemed. Most major papers carried interviews with him on the Monday, where he stressed the deal was not a hoax.
"We didn't anticipate such a fuss," he told The Australian. "It has come as quite a surprise for us. We are quite taken aback by it. But that's how the market works.
"We think our bid is a good bid. It works on a technical and practical level," he said. "We have put a lot of work into it and would like to engage further."
Finally, on Monday, David Jones went into a trading halt after its shares lost 5.41% in early trade.
Sheehy tells LeadingCompany he doesn't know enough to make a judgement on whether David Jones should have gone into a trading halt earlier.
However, he offers in-principle support for trading halts when there is incomplete information.
"A nonconventional bid, rumours on blogs ... that's not a fully informed market," he says. "In those situations it's perfectly reasonable for the company to request a trading halt."
Ramsay says companies are very nervous about trading halts. "They fear the company's reputation will take a hit," he says. "It was a difficult call, and now, when we see all that occurred in the market – the share price goes up, the speculation, the lack of proper information – it would have been preferable to [go into a trading halt earlier] with the benefit of hindsight."
And then, yesterday, the bid was withdrawn. The company came out of a trading halt, and investors wiped out most of Friday's gains.
Ramsay says there are questions for regulators to answer: "There are going to be important questions for ASIC and the ASX about whether was it ever a credible bid ... how the information leaked to the blogger, and why the bid was withdrawn," Ramsay says. "The bidder says that it was withdrawn because of the publicity and at the same time he has a public relations firm in Sydney. Should we be taking some of the pressure off companies around continuous disclosure?"
Esho says the lessons are not for companies or for regulators, but for investors. "Perhaps there is room to help companies clarify such responses, in the digital age, should they be unsure to disclose or not," he muses. "But buying shares on the back of what seems to be an odd offer is a risk that investors take upon themselves."