Such optimism from Motley Fool Department store operator Myer...

Such optimism from Motley Fool

Department store operator Myer Holdings Ltd (ASX: MYR) was up about 8% on Wednesday following media speculation that billionaire Solomon Lew (the chairman of Premier Investments Limited (ASX: PMV)) might be sniffing around Myer as a potential takeover while the retailer struggles with sales. Myer issued an earnings downgrade just before releasing its interim results. That infuriated shareholders, some of whom have launched legal action against the company.
The Australian Financial Review reported Lew may be waiting for further earnings downgrades which could cause Myer to breach financial covenants and need a capital raising. That would put the retailer in a vulnerable position.
Should investors be jumping in to take advantage of a potential takeover bid? Until one officially comes – no. Firstly, it may never come. Would you want to buy a weak company that seems to be experiencing a structural change in its business? Again, no. If there is no offer on the table, then you must pick a stock based on its present business merits.
Hoping an offer will come is not a wise move. Would Lew or any other suitor come in with a fantastically priced premium offer? They would be hunting for bargains and offer as little as possible. The shareholders would probably jump at it given Myer’s recent performance. Save yourself stress – avoid Myer Holdings.