Col­lapsed deal ben­e­fits Shoprite

Finweek English Edition - - HOUSE VIEW - ed­i­to­rial@fin­ By Mox­ima Gama

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

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