Ackerman era at Pick n Pay may be ending
Pick n Pay shares fell the most in at least 25 years after the retailer announced it was seeking to raise as much as R4bn in a rights issue to stabilise its finances.
Pick n Pay shares fell as much as 16.43% before closing at R21.71, a decline of just over 16%.
The rights issue, in which existing shareholders will be invited to reinvest in the business, could potentially lead to the founding Ackerman family ceding control of the business.
Pick n Pay also announced plans to separately list Boxer, its discount division, to further shore up group finances, though it will retain a majority stake in the star performer.
That the group needs both a capital raise and to list Boxer reveals the severity of the situation in which Pick n Pay finds itself.
Sasfin analyst Alec Abraham said: “The capital raise of R4bn clearly is not enough to fix the balance sheet.
“That is why Pick n Pay has to unbundle Boxer as well.
“Boxer needs capital to expand, because it’s opening new stores,” but Pick n Pay did not have the money.
CEO Sean Summers on Thursday issued a directive indefinitely suspending all new Pick n Pay store developments. However, the Boxer and clothing stores will continue to expand.
The rights issue and unbundling will require shareholder approval.
SUPPORTIVE
The group said the Ackerman family, which holds about a quarter of its shares, was supportive of the move.
Retired retail analyst Syd Vianello said it was not certain whether the Ackermans would continue to control the business.
To remain in control, the Ackerman family would need to invest at least R1bn in the rights issue, he said.
Vianello said he did not think existing shareholders would invest the cash needed to raise R4bn if the founding family remained in control. It looked like the “Ackerman era is coming to an end”.
The listing of Boxer and capital raise would help the company restructure its balance sheet, Summers said in a statement. “This is the appropriate action, at the right time, to help our turnaround strategy. More details of our turnaround plan will be announced when we release our results in May.”
Pick n Pay said it expected to publish a headline loss in the year to end-February after it recorded its first interim loss for the period to end-August.
SUPERMARKETS
“The loss is entirely attributable to the performance of the Pick n Pay supermarkets business,” it said at the time. “The group’s Boxer and clothing businesses remain highly profitable.”
Analysts believe Boxer could surpass Pick n Pay’s market capitalisation when listed and benefit shareholders by giving them access to the most valuable part of the business.
In a letter to staff, Pick n Pay appeared to concur with that view: “Boxer is an exceptional business punching well above its weight in the retail industry. We have to recognise the full value and potential of this busi
ness is not really reflected in our share price and we know that shareholders would like the opportunity to hold a direct investment in Boxer.”
Pick n Pay has had to ask lenders to waive debt agreements as its obligations almost doubled, from R3.8bn to R7.2bn, after a poor performance over the festive season.
“Following this engagement, long-term lenders have agreed to waive all covenants on the syndicated loan and bilateral loan facilities as at February 25, while amending them for August 2024,” Pick n Pay said.
The company also gave a trading update for the 47 weeks to January 21 on Thursday.
Boxer reported a 17.1% increase in sales, largely as a result of opening new stores. Its same-store growth of 7% is probably in line with or lower than price inflation and it could be selling lower volumes than the prior period — as is the case with all the other listed retailers.
The clothing business continued to thrive, with growth of 17.5% for the period and like-forlike growth of 8%. It has also been taking market share from competitors.
Summers, who left Pick n Pay in 2007, was brought back in October to stabilise the group, said a turnaround would take two to three years.