South African Woolworths Holdings' $2.1 billion offer for David Jones is better than it looks despite being at the lower end of a standard value range, according to an independent expert.
Grant Samuel & Associates said in a report prepared for David Jones shareholders that the 25 per cent premium Woolworths was offering increased to between 35 per cent and 40 per cent if pre-bid takeover speculation was taken out of the share price.
The report concluded the offer was both fair and reasonable. It was in the best interests of shareholders in the absence of a superior proposal.
The David Jones board is continuing to back the bid.
Woolworths is offering shareholders $4 a share. Grant Samuel's report assessed the department store operator's full underlying value at between $3.73 and $4.14 a share.
In extracts of the report released by David Jones yesterday, Grant Samuel said the premiums over the retailer's April 8 share price before the offer was announced were reasonable but towards the lower end of the standard range.
"However, in Grant Samuel's opinion, the premiums based on prices up to January 30 are the more relevant as these are undisturbed prices and are a better reflection of where David Jones shares would trade in the absence of a takeover offer or any speculation as to one," the report said.
"On this basis, the Woolworths offer represents very substantial premiums for control (circa 35-40 per cent)."
The share price stood at $2.87 at the close on January 30.
The same day, David Jones confirmed it had been approached by rival Myer about a merger. The stock climbed steadily after that.
"In the absence of the Woolworths offer or any alternative offer (or speculation as to any offer) it is likely that, under current market conditions, David Jones shares would trade at prices well below $4," the report said.
The full document will be released when a scheme booklet is sent to shareholders.
The Federal Court yesterday approved a June 30 shareholder meeting in Sydney to vote on the offer.
David Jones' shares yesterday closed down 1Â¢ to $3.94.