If at first you don’t succeed ...
The group is flourishing and has great plans, but a merger with Steinhoff remains the largest shareholder’s goal
Say what you want about Christo Wiese, he really is determined.
Once more he has his sights set on a merger between Shoprite and Steinhoff’s
African operations.
He may, for the second time, have to walk away with nothing to show but defeat.
In the latest merger attempt by Wiese (Steinhoff’s and Shoprite’s largest shareholder) Shoprite would, if it succeeds, find itself controlled by a separately listed company, Steinhoff Africa Retail (Star).
It would bring together the R141bn annual revenue of Shoprite and the R80bn annual revenue of Steinhoff’s African retail operations, which include Pepkor, JD Group, Steinbuild and Tekkie Town.
The deal, which would give Star a 22.7% economic interest and 50% of the voting rights in Shoprite, had seemed to be destined for success, but has struck a potentially devastating obstacle.
Steinhoff, always one to raise eyebrows, is this time faced with allegations of malpractice levelled against it by Manager Magazin ,a monthly German business publication of the influential Spiegel Group.
It reported that German prosecutors are investigating Steinhoff CEO Markus Jooste and certain other senior managers in connection with suspected accounting fraud.
Steinhoff did not respond to a Financial Mail request for comment. So far its reaction has been limited to a statement released on Sens on August 24 in which it rejected the allegations, saying that “substantial facts and allegations are wrong or misleading”.
Steinhoff continued: “We note that the source of some of the [published] allegations is a former joint venture partner with whom the group’s subsidiaries are embroiled in litigation.” It concedes that the outcome of the litigation is likely to result in it having to compensate its former joint venture partner financially.
Manager Magazin’s allegations could be hot air, or a matter of where there’s smoke there’s fire. Whatever the case, the allegations have done Steinhoff serious credibility damage, as reflected in a 14% slump in its share price following their publication. Credibility damage could be enough to derail a key element of
Star’s formation: a capital raising exercise by Steinhoff.
A second defeat for Wiese, who has a 23.1% stake in Steinhoff and a 15.93% stake in Shoprite, would be hard for him to swallow, but he could be facing just that.
The first merger attempt ended in failure in February when agreement could not be reached between the two companies on the share exchange ratio.
Shoprite CEO Pieter Engelbrecht enthuses
While Curro’s schools division might have stolen a march on Advtech’s school brands, the complete opposite is true for the tertiary offerings
about what the creation of Star could bring.
“We would immediately be able to start generating supply chain synergies in Africa with Pep,” he says.
It could open up other opportunities.
“We could develop shopping centres in Africa to enable us to shut out our competitors,” says Engelbrecht.
“With our brands we can offer food, clothing, furniture, fast food and footwear.”
Is success or failure in the creation of Star the be-all and end-all for Shoprite as an investment? It would seem not to be.
“Whatever happens, Wiese will still control Shoprite and Steinhoff,” says independent retail analyst Syd Vianello.