The business world’s obsession with private equity firms is compulsive - akin to a 16-year-old’s first infatuation. The seduction of the mysterious or the unknown, depending on how you look at it, is irresistible.

Oh, you're so charming, here's $1.65 billion

Such is the case with David Jones’s mysterious suitor EB Private Equity, the little-known UK private equity firm, whose website boasts credentials in commercial real estate investment. Corporate buzzwords such as mezzanine and structured finance and joint ventures fill its pages with hopes of new money to be made.

And new money has indeed been thrown at David Jones to the tune of $1.65 billion, about $3.12 per share. Last Friday, David Jones announced to the market EB had approached them with a bid to buy its business. The market reacted to the news with a near 20 percent rise in David Jones’s share price bringing the price to a three month high.

The beleaguered retailer has already had a tough run with its share price in recent times because of the poor retail climate. The back-to-back profit downgrades since 2011 which culminated with a reaffirmed profit fall of up to 40 per cent in June this year show that the company is doing it tough.

So you can only imagine the reaction of the market who, thirsty for relief, rushes to trade at just over 24 million shares on Friday. About $62 million of shares were traded and that’s not just David Jones’s shares. Myer’s shares had a field day too.

It is a case of damned-if-you-do and damned-if-you-don’t for David Jones. ASX listing rules requires David Jones to release material information to the market once it is aware of it.

Professor in Commercial Law Ian Ramsay, expressed this exact sentiment of sympathy for David Jones: “The fact that it looks like David Jones was only forced to release very inadequate information, but whatever information it apparently had because of the work of this UK blogger, is really unsatisfactory, and isn’t the way in which our securities markets are supposed to operate.

“But I can understand why David Jones felt that it needed to do this, because after all nothing will affect the share price of David Jones more than a possible takeover,” he said.

Which brings us to the mystery of it all, EB Private Equity, whose website has no contact details, no comforting “About The Company” details and just four brief tabs of generic business blather.

The mystery deepens with its curt URL which carries no expressed financial licenses or the usual business website small print.

Back in March 2012, Fairfax told the story of an internet businessman by the name of Alvin Donovan who surfs the web to make a fast buck. Surprise, surprise, the facts are similar here. Alvin’s business calling card is a series of websites with no contact details, or legitimate real business investments. The seductiveness of his financial tool, equity line financing, is used to supposedly help cash-strapped companies raise capital.

A classic case of the predator stalking the vulnerable.

In a time of whirlwind technological change, we shouldn’t forget that Facebook is not the only place where issues of privacy and legitimacy are of great concern. Behind the powerful visuals of any internet webpage could be somebody very dangerous.

The seductive unknown can suddenly take down a very large company if not careful. And the market needs to be aware of this.

Even with all the sophistication of ASX systems and the processes of public companies, investors must take all information with a grain of salt, much like anything on the internet.

The market is just as responsible as David Jones is in protecting its own investments.

Just because one John Edgar who calls himself the Chairman of EB Equity and says he’s got $1.65 billion with your company’s name on it doesn’t mean you should start calling your broker. If you run a Google search, there are at least five tertiary educated businessmen on Linked In with the same name.

Today ASIC has cautioned it will ensure market integrity is maintained and bring to account those who are responsible for any breaches of law.

It’s ironic that the EB Equity website quotes George Patton saying: “Never tell people how to do things. Tell them what to do and they will surprise you with their ingenuity.”

Let’s hope the market’s ingenuity is doing the right thing – staying away from the mysterious.

Most commented

21 comments

Show oldest | newest first

    • James Ricketson says:

      06:06am | 04/07/12

      The old expression “There’s a sucker born every minute,” springs to mind. I wonder who has made mega bucks out of this scam and if it will be possible to find out who and then deliver the appropriate form of justice to them.

    • Pedro says:

      03:34pm | 04/07/12

      “Never tell people how to do thing.”
      That’s an even better expression. Don’t know what it means but I like it. Is this on the EB website or is it an author-generated original? Is it meant to be read with a lisp?
      Anyway the whole episode certainly has me thinging.

    • marley says:

      07:37am | 04/07/12

      John Edgar?  As in J. Edgar Hoover?  Someone’s got a sense of humour, if nothing else

    • Bob Stewart, the Elder says:

      09:19am | 04/07/12

      Ah! but see what is happening as the internet takes hold.? Saves getting dressed, wasting a day, the traffic snarls and $20 to park the car 4 kms away then to cover the rest on foot.  David Jones like many of the big retailers and that includes the city Coles and Woolies should stem the bleeding by building a very big shed out on a interstate highway close to a small town with a post office and sell up the city real estate while they can get a good price for it. Lameroo would be ideal.

      Myer Adelaide would be a better site for a hospital than that $1 million a day for 35 year grandiosity at the railyards that is to take 10 years to build. 2 way Drive through Rundle to Nth Tce, (I think it is Charles St,) escalators and elevators for everything and everybody whether ambulatory or not.

      How much? $5 million for the site and $8 million plus to fit out. Timeline?
      3, perhaps 4 years max. Compare that with $8 billion plus to build and fit out and 10 year plus timeline to complete.

    • Pedro says:

      03:34pm | 04/07/12

      Real estate sure is cheap in Paedelaide ... and now back to the real world on the east coast of Australia.

    • Zeta says:

      09:30am | 04/07/12

      A lot of the people thinking DJ’s were the victim of some prank obviously don’t know much about private equity. Most of the world’s top private equity firms’ websites aren’t much better than a Geocities page from 1999. Bain Capital’s page looks like a freaking MySpace for a band that plays music inspired by bland architecture. Goldman Sach’s Capital Partners, their private equity company, probably has the slickest page, but they’re only number 2 - TPG Capital, the world’s largest private equity firm, rolling with about $50 billy worth of assets is the largest, and their website, tpg.com, looks like a Russian phishing scam.

      As much as this might shock journalists and anyone who owns an iPhone, you can run a successful private equity firm without any visible online presence. It all depends on wether you’re using your own partners to raise your funds, like TPG and Goldman do, or else limited partners. Anyone familiar with the age of the ‘corporate raiders’ would know most of those equity firms were in reality just shadow puppets for the cash of wealthy investors like James Goldsmith, or more personal favourite, T Boone Pickens. Yes, that’s his real name. If I were a multi-billion dollar equity fund pirate I’d change my name to Nickelback J. Hitler.

      Now everyone kind of goes ‘oh, we knew all along this was a joke, but the regs said we had to report’, but that’s just hindsight bullshit. Fact is, for a middling little regional interest like DJs, you probably would use a paper equity firm to leverage the buy out. $1.6 billion is literal chump change for small to medium sized private equity firms. That’s the kind of equity even a small firm would throw on top of a loan.

      And most small firms are really just one guy in his pyjamas with a laptop on his couch. I think people would be shocked at just how many buyouts are leveraged while a guy watches Ellen.

    • acotrel says:

      10:12am | 04/07/12

      The free market is a wonderous thing.  Oh well, at least the controls are built into the system We should never have another GFC despite all of the scamming attempts by the unscrupulous ?

    • Zeta says:

      11:23am | 04/07/12

      @ acotrel - It’s not a scam, really. It might seem like one, but it’s perfectly legal. There’s absolutely no evidence to suggest that EB Private Equity couldn’t get $1.65 billion. Just because they’re not listed on Companies House doesn’t mean they didn’t have a lender or a limited partner.

      And even if they didn’t before, they certainly might now. Private equity firms are like people who buy shitty houses and renovate them for sale. You could make a very convincing pitch to an investor to partner with you to buy out a middle of the road retail concern like DJs, gut it, implement a streamlined, online retail buisness model, then flog the shares back.

      I actually think it’s a very smart strategy, similar to what big equity was doing to fast food buisness before the GFC. Big PE firms have analysts constantly looking at buisnesses for efficencies, in the mid naughties, they noticed how inefficent and unprofitable a lot of franchise model fast food was so they started buying out everything they could. Mitt Romney’s last big buy out for Bain was Hungry Jacks as I recall. Goldman Sachs bought Dunkin Donuts. Once those buisnesses were profitable again they sold them for a profit.

      I can see the same thing happening with retail. Buy them now while they’re weak and vulnerable, force the slow adapters like DJs, Myer and Harvey Norman to embrace online sales, then sell high.

      It seems like a cruel thing to do, and it does result in huge job losses in a lot of sectors, but private equity actually does something really important for the market. These companies would other wise dip and dip into obscurity and eventually go under. No one wants to buy or buy into a company that’s going to fail. Leveraged buy outs provide a last resort for companies that otherwise wouldn’t survive.

      It gets a bad rep because of what happened in the 80s, when the big corporate sharks started raiding otherwise healthy companies for quick bucks - but in another five or so years, when physical retail goes the way of Bowie bonds, equity will be offering half the EB offer to buy out and streamline, or else they’ll pick the meat off the company and leave the scraps for creditors.

    • MarkS says:

      09:45am | 04/07/12

      DJ’s was trolled

    • Draconian says:

      11:54am | 04/07/12

      You’ d think they’d have had lawyers, accountants etc looking into this prior to making any statement to the public wouldn’t you?

    • marley says:

      12:34pm | 04/07/12

      @Draconian - there’s quite a lengthy article in the Oz about this.  They apparently went public because the mysterious equity firm was about to do so, and they thought they had an obligation to state that they knew of an offer.

    • iansand says:

      01:40pm | 04/07/12

      Draconian - If you want to know why they did what they did, have a look at ASX Listing Rule 3.1 and ASX Guidance Note 8 at around paragraph 52.  They had little choice.

    • Draconian says:

      02:09pm | 04/07/12

      @iansand.  Looking at ASX Listing Rule 3.1.  it also states that it expresses broad principles that cannot be defined with absolute clarity but then goes on to state that an entity must comply with the listing rules as interpreted by looking beyond form to subtance in a way that best promotes the principles on which the listing rules are based.

      How did DG look beyond the form to the substance?  It seems to me that they didn’t do any research into the supposed takeover.

    • iansand says:

      02:25pm | 04/07/12

      How do you know.  And did you look at the Guidance Note? 

      I can assure you that if you ask your ASX adviser what you should do their response is to require you to explain why you should not disclose - their default position is always disclosure.

    • Suzanne says:

      09:53am | 04/07/12

      Look at the DJ’s Board and Chairman - thats all you need to say

    • tombowler says:

      10:44am | 04/07/12

      Yes because the DJ’s board would be likely to seek out ASIC’s tender mercies for market manipulation with the end goal of devaluing their own company…. Clown….

    • TrueOz says:

      10:34am | 04/07/12

      Alexa rank in the 7 millions +, zero Google page rank, just two pages of indexed content on Google, just three identifiable inbound links to the site, no record of the site (ever) at archive.org, no office address, no phone number, no information about the actual name of the company, or the jurisdiction in which it is incorporated ...

      Just ten seconds of cursory research by ANYONE who is web savvy and/or who has two or more connecting brain cells and the alarm bells should have been ringing loud and clear on this one!

    • Ron e says:

      10:41am | 04/07/12

      A record of trading in the days surrounding the ‘announcement’, could make interesting reading.

    • iansand says:

      11:34am | 04/07/12

      DJs were between the classic rock and a hard place with continuous disclosure obligations.  If they had not disclosed and the bid had been genuine they would have been in breach of their obligation.  By disclosing they left it up to the market to decide whether it was a hoax.  After all, the market knows everything.  What they did was the right thing to do on a difficult balancing exercise.

    • Robert S McCormick says:

      01:35pm | 04/07/12

      As always someone, somewhere, will have made a fortune out of this little exercise!
      It has ever been thus.
      Just look at our Federal, & soon to follow, State & Territory, politicians.
      Since last July the Feds have, thanks to a compliant (why wouldn’t you be compliant when your owner tells you to do something) Remuneration Tribunal, it’s set up by the politicians, those selected to run it are selected by the politicians, has granted them a massive 35.5% pay rise!
      With the Share Market it is a matter of What you Know.
      With the Politicians it is Who you know.

 

Facebook Recommendations

Read all about it

Punch live

Up to the minute Twitter chatter

Recent posts

The latest and greatest

The Punch is moving house

The Punch is moving house

Good morning Punchers. After four years of excellent fun and great conversation, this is the final post…

Will Pope Francis have the vision to tackle this?

Will Pope Francis have the vision to tackle this?

I have had some close calls, one that involved what looked to me like an AK47 pointed my way, followed…

Advocating risk management is not “victim blaming”

Advocating risk management is not “victim blaming”

In a world in which there are still people who subscribe to the vile notion that certain victims of sexual…

Nosebleed Section

choice ringside rantings

From: Hasbro, go straight to gaol, do not pass go

Tim says:

They should update other things in the game too. Instead of a get out of jail free card, they should have a Dodgy Lawyer card that not only gets you out of jail straight away but also gives you a fat payout in compensation for daring to arrest you in the first place. Instead of getting a hotel when you… [read more]

From: A guide to summer festivals especially if you wouldn’t go

Kel says:

If you want a festival for older people or for families alike, get amongst the respectable punters at Bluesfest. A truly amazing festival experience to be had of ALL AGES. And all the young "festivalgoers" usually write themselves off on the first night, only to never hear from them again the rest of… [read more]

Gentle jabs to the ribs

Superman needs saving

Superman needs saving

Can somebody please save Superman? He seems to be going through a bit of a crisis. Eighteen months ago,… Read more

28 comments

Newsletter

Read all about it

Sign up to the free News.com.au newsletter