Myer, Australia's largest department store chain, plans to raise up to $2 billion in a share offering that will test investor appetite for retail stocks and may encourage other IPOs in the sector.
Myer, which was taken private by U.S. private equity firm TPG in 2006, 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 be divided equally between retail mum and dad investors and institutions, but analysts said institutional investors may be cautious.
It's very opportunistic at the moment. You are coming off a fairly strong tailwind from (government) stimulus and low interest rates, said Karara Capital portfolio manager Akshay Chopra.
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.
Myer will be Australia's largest IPO since drilling services company Boart Longyear Ltd in April 2007.
A consortium led by TPG Capital bought Myer for A$1.4 billion from Coles Group in 2006, and has spent more than A$370 million in updating logistics operations and renovating stores.
The owners of Myer are seeking to capitalize on a 50 percent share market rally that has lifted Australian shares 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.
The wide range in valuation (for Myer) 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 Chopra.
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 capitalization of A$2.28 billion-A$2.77 billion, plus debt of A$392 million. The sale will be lead managed by Credit Suisse, Goldman Sachs JBWere and Macquarie Capital Advisors.
Myer Chief Executive Bernie Brookes said the offering would also be marketed in the U.S., UK and Asia.
There are a large number of IPOs taking place through Asia and there is still a more difficult period in both the UK and the U.S. in regard to available capital, so we have not set any objectives for international investors, Brookes said.
Myer has 65 stores across Australia, nearly double its upmarket rival David Jones' 36 stores, and claims 3 million shoppers a week through its doors in a country of 21 million.
But the retail environment may not look as rosy in 2010.
Everyone is well aware of some of the headwinds facing consumers over the next 12 months, as stimulus is removed, said White Funds Management portfolio manager Angus Gluskie.
Indeed, Australia's central bank Governor Glenn Stevens said on Monday interest rates would be raised as demand picks up.
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.
Share pricing is expected on October 30 and the shares are due to start trading November 2, the prospectus said.
(Editing by Dhara Ranasinghe)