Asset split may revive Wiese’s merger plans
Steinhoff to separate Europe, Africa operations
THE splitting of Steinhoff’s local and European assets may put the Shoprite and Steinhoff merger back on the table.
But — to woo investors — majority shareholders will have to sweeten the deal.
Earlier this year, shareholders opposed the transaction as the biggest shareholders Titan, Steinhoff and the Public Investment Corporation (PIC) could not reach agreement on the exchange ratio for the share exchange.
This week, Steinhoff announced plans to separate its European and African operations into two companies, which would be listed separately.
Soria Hay, head of corporate finance at independent investment banking firm Bravura, said that it might be easier for Shoprite to merge with Steinhoff’s African operations if the assets were separated.
Yet there is still a big difference between what people would consider a grocer — Shoprite — and the retail, furniture and clothing operations that form part of Steinhoff.
Hay said a separate listing of Steinhoff’s African operations was an opportunity to offer a different distinct entry for investors who are interested in Africa, as opposed to those who want to back the offshore growth. She said separating these assets may pose a shortterm share price risk for Steinhoff as there could be a period when “their share price may be a little bit under pressure whilst investors determine their preference”.
Charles Allen, a senior retail analyst at London-based Bloomberg Intelligence, said it would be more difficult in the short to medium term for Steinhoff and Shoprite to merge.
“Steinhoff was going to sell its African assets to Shoprite for shares in the enlarged company. It would likely have to pay cash now. In the longer term, if the African operating company establishes a good track record and receives an appropriate valuation, it may be possible to revisit the idea of merging these businesses,” said Allen.
According to the company statement, the split will see Steinhoff consolidate its African retail businesses into a listed entity on the local bourse, with assets including Pepkor South Africa and rest of Africa, JD Group, Unitrans Automotive, Steinbuild, Poco South Africa and Tekkie Town.
Steinhoff’s businesses outside Africa include Conforama in Europe, Mattress Firm in the US and Bensons for Beds and Pepco in the UK.
Since the announcement of the split on Wednesday, Steinhoff’s share price gained about 9.83% in Frankfurt and 9.52% on the Johannesburg Stock Exchange.
Steinhoff’s African operations contribute 26% of its revenue, while the group’s combined European, UK, Australasia and US operations account for about 74%.
Shoprite chairman Christo Wiese, who owns a 23% stake in Steinhoff and a 16% stake in Shoprite, was one of the reasons that the deal between Shoprite and Steinhoff had fallen through, as shareholders believed that the merger would benefit him and the group’s largest shareholder, the PIC.
But when asked about a possible renewal of a Shoprite and Steinhoff merger, Wiese said on Friday: “Unfortunately, I’m in a position where I can make no comment” because as a listed company “any comment made must be made” through the exchanges.
“People must speculate as much as they want, but we are not in a position to comment,” said Wiese. He became Steinhoff’s biggest shareholder when he sold clothing chain Pepkor to Steinhoff for R62.8-billion in 2014. He is also the largest investor in Shoprite, and was leading the merger talks between the two companies.
But Hay said: “It is not clear what exactly will happen with the Pepkor offshore and Africa operations. If Pepkor itself really does split between offshore and Africa and there is only the Steinhoff African business left, [the] Africa business may be relatively limited from an African growth perspective.”
She said Steinhoff locally would be a less interesting investment than Steinhoff International, depending on what the company did with the Pep brand in the Pepkor Group.
“Pepkor is a very interesting business and Pepkor’s offshore performance internationally is remarkable,” said Hay.
But some of Shoprite’s minority shareholders have said they will strongly oppose a merger.
Zwelakhe Mnguni, the chief investment officer at Benguela Global Fund Managers which owns about a 3% stake in Shoprite, said: “We would vehemently oppose such a merger as this would lead to a massive dilution of Shoprite’s excellent business quality.
“We would only consider an outright buyout at a significant premium to the current price.
“The cost of replicating a Shoprite on the African continent today would be substantially more than what Shoprite is trading at.”
Mnguni said that they were not interested in Steinhoff Africa’s activities as these were a blend of good- and bad-quality businesses. “Our focus will be to defend our preferred investment in the retail industry: Shoprite.”
Whether or not the deal was put back on the table would be driven by how the transaction was proposed, Hay said.
Pepkor’s offshore performance internationally is remarkable
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