Myers IPO To Raise $2 Billion

MELBOURNE (Reuters) – Myer, Australia’s largest department store chain, plans to raise up to $2 billion in a share offering that will test investor appetite for new equity as the global economy shows signs of recovery.

Myer will be the largest listing on the Australian Stock Exchange since the third tranche of telecoms firm Telstra Corp (TLS.AX) in November 2006, and Australia’s biggest IPO since food group Goodman Fielder Ltd (GFF.AX) in 2005, according to Thomson Reuters data.

The IPO market across Asia, particularly in Hong Kong, has heated up in recent weeks, but not all have fared well in a signal that investors have limited appetite for overly rich IPO valuations. [ID:nSP393789]

Myer, owned by U.S. private equity firm TPG [TPG.UL], said in its prospectus on Monday it will offer up to 499.5 million shares at A$3.90-A$4.90 each.

The offering is expected to attract a large retail investment base, but analysts said institutional investors may be cautious.

“The wide range in valuation is already telling us they are keeping options open — if institutional holders are a bit wary they will price at the low end of the range,” said Karara Capital portfolio manager Akshay Chopra.

He said fund managers would examine closely whether a recent improvement in margins was sustainable, and whether the returns from planned new stores would match existing returns.

Myer was taken private by a consortium led by TPG Capital in 2006, when it bought the chain for A$1.4 billion from Coles Group. It spent more than A$370 million in updating logistics operations and renovating stores.

The owners of Myer are seeking to capitalise on a 50 percent share market rally that has lifted Australian shares .AXJO near an 11-month high, while retail sales have been underpinned by government cash handouts to boost the economy.

Private equity firms have been stymied by the freezing of credit markets for two years and are only now being able to offload stakes bought during the boom as confidence recovers.

OTHER RETAILERS MAY FOLLOW

A successful listing by Myer could encourage other Australian retailers held by private equity firms to follow suit.

Analysts say potential IPO candidates include camping and outdoor gear retailer Kathmandu, owned by Goldman Sachs JBWere and Quadrant Private Equity, and Archer Capital-owned Ascendia Retail, which runs the Rebel Sport chain.

The indicative pricing implies Myer will have a market capitalisation of A$2.28 billion-A$2.77 billion, plus debt of A$392 million.

Myer has 65 stores across Australia, nearly double its upmarket rival David Jones’ (DJS.AX) 36 stores, and claims some 3 million shoppers a week through its doors in a country of 21 million.

Myer said that based on proforma 2010 earnings, the company would be valued at a multiple of 14.3-17.3 times.Karara’s Chopra said that implied a premium to the multiple of industrial stocks of around 13 times earnings.

TPG and Blum Capital have a combined stake of 84.2 percent, while the Myer family and management hold the balance. Myer said TPG and Blum would retain a stake of up to 13.5 percent after the initial public offering.

A source familiar with the situation told Reuters there was very strong demand from retail brokers and retail investors.

Myer’s 3.1 million loyalty card holders were able to pre-register interest to receive a prospectus.

By Victoria Thieberger

(Editing by Dhara Ranasinghe)