The Rudd Government and the Reserve Bank have bailed out the staggering privatisation of the Myer retailing chain.
In fact, it can be easily argued that without the $432 billion and more of stimulus spending — especially the cash splashes last December and in April of this year — and the record 4.25% cut in interest rates from the RBA, Myer would still be close to a basket case staggering under a load of debt.
Instead, the retailer is now in a position where its owners — TPG, the US buyout group which tried to grab Qantas (with Macquarie Bank and Qantas management), the Myer family and other smaller investors — have now advanced the relaunching of the retailer via a stockmarket float that could happen before Christmas this year, or in the first quarter of 2010.
The buyout group originally had planned to look at this option 39 months into the 50 months allocated to turn Myer around. Now they are arguing the turnaround is more advanced and the retailer is humming.
The real story is that the stimulus spending and rate cuts have helped support retail sales for this year: in the June quarter sales rose 2% according to Australian Bureau of Statistics figures yesterday. That was despite a 1.4% fall in the month of June as the stimulus wore off.
The quarterly rise was driven by a 2% rise in volumes, indicating that demand across the sector was quite strong, especially at a time when unemployment rose. But consumer confidence also rebounded strongly in May and June, and that has continued into July.
That’s why the private equity owners of Myer reckon the window has opened for a float for the retailer and a chance for TPG and others to take their money and run. Remember that the buyers cut the original near $1 billion cost by around $400 million by selling the Myer Bourke Street store to investors, so the profits will be large.
The best indicator for the float and the way the prospects for the retailer have recovered can be seen in the price of the 2013 notes listed on the ASX (with an interest rate of 10.38%. They traded up to 99.5% of the face value of $100 yesterday, or $99.50.
At one stage earlier this year they were trading down around 59.5c in the dollar. That’s a loss of 40 cents in the dollar. At that level the market was signalling, ‘goner’.
The steady rise in the price of those notes has told us that the market has become increasingly confident that Myer wouldn’t go broke.
But that’s only due to the Federal Government and the RBA’s moves to cushion the entire economy.
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