Published: Monday, 2 Nov 2009 | 12:57 AM ET

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Shares in department store chain Myer Holdings tumbled as much as 9 percent on their debut in a $2 billion float, Australia's biggest in two years, a disappointing signal for other retailers
with IPOs waiting in the wings.

Rick Rycroft / AP

Myer shares fell from the offer price of A$4.10, itself near the bottom of the initial offer range, and fund managers said other private equity firms waiting to exit retail companies would have to price their offerings carefully.

"It might put a bit of pressure on the valuation band, and pricing that is expected or achieved, for investors to be persuaded," said Karara Capital investment manager Akshay Chopra.

"It tells you the interest was a bit soggy to begin with, and I'm not sure how much difference it would have made even if the (broader) market was up today," Chopra said.

Myer shares opened at A$3.88 and touched a low of A$3.70 before closing at A$3.75, compared with a 2.2 percent fall in Australia's benchmark index. Shares in Myer's main rival, upmarket department store chain David Jones, fell 2.0 percent to A$5.25.

Myer's price had already been pushed to the bottom end of an indicative range by market turbulence over the past week and fund managers' disdain for what was seen by some as a rich valuation.

About 50 percent of the Myer offering was allocated to retail investors. It was the most actively traded stock on Monday, with around 126 million shares changing hands.

Myer's float was widely seen as a test for a rush of private equity firms wanting to exit their holdings in coming months.

Camping and outdoor clothing chain Kathmandu has launched a A$374.9 million IPO, due to start trading on Nov.18, and Ascendia, owner of the Rebel Sports sporting goods chain, aims to launch in the new year.

Results, Please

Retailers are cautiously optimistic about sales for the crucial Christmas season. Confidence levels have not been dented by the recent rise in official interest rates, and the Australian government on Monday slashed its forecasts for unemployment, which should help underpin consumer sentiment and spending.

For Myer, the two-month Christmas and summer holiday trading period is critical, accounting for about 40 percent of earnings.

Myer's private equity owners TPG Capital and Blum Capital, which bought the chain in 2006, sold out their entire stake in the IPO.

TPG put in equity of about A$400 million in the original investment, when it bought Myer for A$1.4 billion.

Some investors have been wary of companies floated by private equity firms, given some poor performances. Drilling services company Boart Longyear trades at less than a quarter of its 2007 listing price, and underwear group Pacific Brands is trading at half its 2004 offer price.

"The (Myer) float was overpriced, with the book build ranges set too high and the vendors trying to extract too much from it," said Kieran Kelly, managing director of Sirius Funds Management.

"If you look at other precedents for this where private equity vendors have tried to get too high a price, such as Boart Longyear, it takes a long time to recover."

Myer's A$4.10 offer price reflected a price-to-earnings ratio of 15.1, below that of David Jones at 17 times forecast earnings.

Macquarie Capital, Goldman Sachs and Credit Suisse were joint lead managers to the offer.

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