David Jones remains a potentially lucrative takeover target even after the iconic retailer rejected a $3 billion merger proposal from rival Myer.
Myer approached David Jones with a merger offer in late October, believing a unified department store business would be better able to compete against international retailers.
David Jones' board rebuffed the approach a month later, but the matter was kept from shareholders and the public until media speculation prompted the two companies to release details of the proposal this week.
IG market strategist Evan Lucas says David Jones remains a possible takeover target, with US-based private equity firms the most likely to make a play for the retailer.
Two things make the company an attractive takeover target: its share price, which remains weak after several years of disappointing sales, and its prized property portfolio.
The company's four flagship properties in the Sydney and Melbourne CBDs have previously been valued at $612 million.
News of the merger proposal boosted David Jones' share price by as much as five per cent on Friday, which shows investors believe further takeover offers are likely, Mr Lucas said.
"David Jones is now a genuine takeover target, which is why you are seeing those market moves today," he said.
The proposed merger would have been a good deal for Myer if it had gone ahead, given the competitive advantages and cost savings the tie up would have yielded, Mr Lucas said.
"The synergies would be amazing: head office costs would be dramatically reduced, your purchasing power would rapidly ramp up," he said.
But a David Jones and Myer merger would be unlikely to get past the Australian Competition and Consumer Commission.
Mr Lucas said the consumer watchdog would have been concerned the merger would have created a virtual monopoly in the department store sector.
David Jones has come under fire from some quarters for failing to notify shareholders of the proposal, though ASX rules indicate companies do not need to tell the market about incomplete proposals or negotiations.
News of the proposal has also raised fresh questions about the purchase of David Jones shares by two of the company's directors, Leigh Clapham and Steven Vamos, in October.
The purchases were made days before a better than expected sales result caused a spike in the share price, and according to this week's information, days after the Myer proposal was lodged.
The Australian Securities and Investment Commission (ASIC) has investigated the share purchases and decided not to take action against the two directors.
ASIC said it was aware of the merger proposal during the investigation.
At the close of trade on Friday, David Jones shares had gained 12 cents, or 4.2 per cent, to $2.99, while Myer had dropped four cents, or 1.6 per cent, to $2.53.