The mystery suitor who took David Jones for fools
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.
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.
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