Coles Myer
shares rocketed more than 5% on the news that Texas Pacific Group, Newbridge
Capital and the Myer family have agreed to pay $1.4 billion for Myer. In Coles
Myer’s announcement to the ASX, current Myer boss Dawn Robertson claimed that
“the decision represented a strong
vote of confidence in Myer and the Myer team and provided certainty of
business”. Robertson added that she was “proud of the Myer team and [its]
accomplishments.” Robertson will not be sticking around though, rejecting the
new owner’s offer of becoming deputy chairman and president of the new Myer (of
course, this may have something to do with her allegedly being eligible for more
than $3 million in termination payments).

However,
for all the back-slapping rhetoric of Robertson and Coles Myer chairman, Rick
Allert, the $1.4 billion price tag paid by the winning consortium merely
confirms what many observers (including this one) have long claimed – that
Robertson was the most overpaid executive in Australia.

Consider
the numbers. Like any private equity investor, the successful consortium would
be expecting a return of at least 30% annually from its investment in Myer. That
means, in about five years time the consortium would look to offload the
retailer for around $4-5 billion (before considering any capital infusions). The
consortium would only get that sort of money if Myer’s earnings leapt from $38.7
million (as reported by Myer in FY2005) to around $500 million.

By paying
$1.4 billion for Myer, the TPG/Newbridge/Myer family are effectively saying
under their management, Myer will be able to earn more than ten times as much as
it was earning under Robertson.

So forget
what Allert and Fletcher try to spin, if Robertson had done such a fantastic job
at Myer its new owners would not be willing to pay such a “turnaround premium”
(the consortium are effectively buying Myer on a PE of more than 36). Robertson
will take her $18 million and join fellow interlopers George Trumbull, Chris
Tyler and Brian Gilbertson as CEOs who came, who saw and who failed to
conquer…but still took home a lot of our cash.

Peter Fray

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