Collapsed deal benefits Shoprite
The share prices of both Shoprite and Steinhoff rallied on 20 February after the companies announced that they have cancelled talks to create a new African retail giant after key parties – the Public Investment Corporation (PIC), Christo Wiese’s Titan Premier Investments and Steinhoff – couldn’t agree on a price.
The proposed deal, announced in December 2016, would have seen Steinhoff selling its African assets to Shoprite in return for a controlling stake in the grocery retailer. In turn, Steinhoff would have exchanged its shares for those of Shoprite’s two biggest shareholders, the PIC and Titan. The deal would have allowed Steinhoff to spin off its underperforming African retail assets, which operate mainly in the clothing, shoe and furniture space and include Pepkor and JD Group, into a separately listed group called Retail Africa. However, the parties couldn’t agree on the exchange ratio that would apply to the share exchange.
The transaction faced some opposition from minority shareholders in Shoprite, who feared that it would short-change them and benefit Steinhoff investors and Wiese, a major shareholder in both companies, Reuters reported a few days before talks were abandoned. They believed that there is a lack of obvious cost savings from overlaps between Steinhoff’s African businesses and that of Shoprite, and that Shoprite had much more potential than Steinhoff’s “inferior businesses”, Reuters said. On the charts: BUY Shoprite above 19 095c/ share: Shoprite retraced after breaking out of its long-term bear channel in August last year – an occasional correction after a breakout. But upside through 19 295c/share would end this short-term pull-back and Shoprite would resume its previous uptrend towards 21 180c/share. The target of the bear channel breakout is situated at 25 500c/share. SELL Steinhoff below 7 750c/share: Steinhoff is currently in the descending phase of a topping out pattern; the consolidation phase ended below 7 750c/share in October last year. Currently the price is ranging between 7 750c/share and 6 065c/share and with the three-week relative strength index (RSI) in bearish mode, I recommend investors stay short below 7 750c/share.
Christo Wiese Chairman of Steinhoff