SYDNEY, Australia — David Jones Ltd., Australia's second-largest listed department store company, rose the most in two months after it said it received a merger proposal in October from larger rival Myer Holdings Ltd. that it rejected.

Shares in the Sydney-based company, which said there are no talks currently between the two store chains, rose 4.7 percent at 11:20 a.m. in Sydney. Myer, which confirmed the approach and said a merger would have led to annual cost savings of A$85 million ($75 million), was 0.2 percent higher.

“There’s a whole lot of market participants thinking that David Jones might now be in play,” Anthony Vogel, a Sydney- based analyst at BBY Ltd., said by phone. “But the bid itself seemed highly opportunistic. You have to wonder how serious an attempt this was. Myer has clearly shown its hand.” He said he is currently reviewing his buy recommendations on both stocks.

Australian retailers have faced increased competition from online operators and foreign entrants including Inditex SA's Zara, Arcadia Group Plc's Topshop and Gap Inc. David Jones's net income fell 6 percent to A$95.2 million in the year ended July 27, while Chief Executive Officer Paul Zahra announced in October he will quit after three years in the role for personal reasons.

Myer Proposal

Myer offered 1.06 of its shares for each David Jones share, the smaller company said in a statement late yesterday. The offer on Oct. 28 involved zero premium and didn’t represent sufficient value, Sydney-based David Jones said.

“The execution and implementation of any such transaction would have substantial commercial, market, business and regulatory risks,” David Jones said.

The merged company would have operated Myer and David Jones as separate store brands and generated pro forma sales of A$5 billion in fiscal 2013, and earnings before interest and tax of A$364 million, Myer said in a statement today.

The merger would have created “a sustainable, more competitive retailer, and provide growth opportunities for the combined business,” Myer said.

A deal would help “David Jones better address the high-end market and Myer could focus more on own-label products,” Morgan Stanley analysts Thomas Kierath and Crystal Wang said in a research note today. The synergies of a merger would be “significant and obvious.”

Directors’ Shares

Two David Jones directors bought shares in David Jones on Oct. 29 last year, a day after the proposal from Myer, according to regulatory filings. The Australian Securities and Investments Commission said in a statement today it had considered the issue and decided to take no action.

“ASIC has investigated the David Jones matter and has considered thoroughly all relevant information, including the conditional proposal, and decided to take no further action,” spokesman Andre Khoury said in an e-mailed statement.

Merger Synergies

Amanda Buckley, a spokeswoman for Myer, didn’t immediately respond to calls made outside of regular office hours. David Jones spokeswoman Helen Karlis also didn’t immediately respond to calls.

Australian retail sales, boosted by low interest rates, rose at almost twice the pace economists forecast in November, climbing 0.7 percent, a government report showed Jan. 9. The central bank is trying to rebalance the economy away from mining regions in the north and west as investment wanes, and stimulate growth in manufacturing, residential construction and retail in the south and east.

David Jones said it made the statement in response to a report yesterday in the Australian Financial Review speculating that Myer could approach the company with an offer of 1.4 shares for each of its stock.

By Iain McDonald, Adam Haigh; Editors: Edward Johnson, Iain McDonald