Deadline looms for Steinhoff ’s UK bid
Retailer has 10 days to declare if it will bid for Poundland chain
STEINHOFF is still mulling over a bid for Poundland in the UK. It has bought more shares in the discount retailer, whose board two weeks ago rebuffed its plan to buy the business outright.
If Steinhoff decides against a bid, which it may well do after assessing the impact of Brexit, it would be the third time this year it has tried but failed to buy a European retailer.
The multinational has been on the prowl for acquisitions in Europe since it listed in Frankfurt last year.
It walked away from a bidding war for Home Retail Group in May, letting Sainsbury’s buy the owner of the Argos chain.
Steinhoff then ditched a bid for French electronics retailer Darty, after battling it out with Groupe Fnac.
Ending its interest in Home Retail Group left Steinhoff without a clear expansion vehicle in the UK but illustrated the group’s discipline, said Jean Pierre Verster, equity portfolio manager at Fairtree Capital. He praised Steinhoff for not overpaying for acquisitions.
But Poundland, with 850 stores in the UK, 51 in Ireland and 10 pilot outlets in Spain, is still in Steinhoff’s sights.
The furniture and apparel multinational increased its share in the business from 23.26% to 23.52% after saying the UK vote to exit the EU had caused it to rethink its offer.
Given that Poundland initially rejected Steinhoff’s advances, the attempt to buy it may turn hostile, say analysts.
Steinhoff now has until 5pm on July 13 to announce a firm intention to bid for Poundland or walk away.
Steinhoff’s purchase of further Poundland shares “implies they would consider a hostile takeover”, said Verster.
“They bought the initial stake before the Brexit vote. It would have been better to buy the stake afterwards, but now they have it, and Steinhoff has a lot of cash on its balance sheet, so they can comfortably finance a
If there is a recession, their position within the market might benefit
takeover if they do continue to pursue Poundland.”
Integrating Poundland would add scale to Steinhoff’s UK retail footprint and logistical synergies could be extracted, said Verster.
Poundland is the largest single-price general merchandise value retailer in Europe in terms of sales and number of stores.
But competition from German discounters Aldi and Lidl in the UK has seen its share price more than halve in the past year, and long-time CEO Jim McCarthy is due to retire soon.
Retail giant and Steinhoff board member Christo Wiese is no doubt one of the reasons the group is pursuing targets in the UK.
“Wiese has an affinity for UK retail, as can be seen by the acquisitions of his other investment vehicle, Brait,” said Verster.
“He also sees UK retail as an attractive market.
“He thinks very long term about markets and sees the silver lining when everyone is negative about the UK and especially about the retail sector.
“But it’s at times like these when you can make acquisitions at very attractive prices. It makes sense not only from a Steinhoff perspective, but from a Christo Wiese influence perspective as well.”
Verster said Steinhoff was primarily exposed to lower-income consumers in Europe and the UK.
“So if there is a recession, their positioning within the market might benefit. People trade down and seek more value for money during a recession.”
But not everyone is convinced.
Wayne McCurrie, senior portfolio manager at Momentum Asset Management, said: “I’m not entirely sure why the UK retail market is so important to Steinhoff. The UK is a big economy, but it’s not flourishing. With Brexit I don’t think it’s a disaster, but it has to be negative and the question is to what degree.”
McCurrie said the UK retail market was highly competitive.
“They’re going there without any advantage, other than their distribution logistics and manufacturing. You go into Eastern Europe or Africa, it’s not that competitive; but this is one of the most advanced retail markets in the world.
“I’m not sure if they can carve a niche, but that doesn’t matter as long as they don’t overpay and the economy carries on working.”
McCurrie said Steinhoff could possibly source relatively cheap merchandise globally, and extract the whole margin and not just the retail margin.
“Markus [Jooste, Steinhoff’s CEO] is a shrewd operator; I don’t think he will overpay.”
Wiese is well versed in the UK retail market — he owned Poundstretcher, a value retail chain, but it did not keep up with its larger rivals Poundland and B&M and he sold it in 2009.
Pepkor has two discount operations in the UK run by Andy Bond, the former CEO of the Asda supermarket chain.
Wiese’s fashion chain Pep&Co launched last year and has about 50 stores, and Guess How Much!, a discount retailer, launched only a few days ago. Last year, Wiese bought affordable high-street fashion chain New Look.
With Brexit it has to be negative and the question is to what degree
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