Africa’s ‘retail giant’ hopes are shelved
MERGER TALKS END It seems not many shareholders besides the majorities were happy about the idea of Steinhoff and Shoprite merging. SHARES RECOVER AS
When you are as big a retailer as Shoprite, with a market capitalisation of R99.4 billion, or Steinhoff, with a market capitalisation of R287 billion, negotiating deals in secret is a luxury you don’t have.
Last December, intense speculation, fuelled by the retirement of Shoprite’s former CEO Whitey Basson, forced the two parties to state blandly they were in talks to create an African retail champion. A mere 90 days later, a similarly bland statement announced the negotiations’ end because majority shareholders including the PIC, Christo Wiese’s Titan and Steinhoff, could not agree on terms – in other words, price.
Loosely, the idea was the two companies would merge, but subsidiaries like Pep and other assorted “Africa” companies would be hived off into Retail Africa, with Steinhoff the ultimate master.
The original Sens statement was careful to suggest the vision was supported by majority shareholders, the PIC and Christo Wiese’s Titan Nominees, but neglected to say who else supported the deal. Wiese owns 16% in Shoprite and 23% in Steinhoff, while the government’s pension fund, the PIC, is the second-biggest investor in Shoprite and Steinhoff with 11% and 8%, respectively.
While some appreciated the merit of creating a diversified pan-African retail group, many shareholders were concerned and shares in both fell about 10%.
“I’m relieved,” says Brian Pyle, portfolio manager of Old Mutual’s industrial fund. “I would like to see some decent results from Steinhoff. I want to see how their European retail strategy unfolds and I don’t want it clouded by what Wiese is up to.”
Analysts anticipated pricing problems. “We were worried,” admits Patrick Ntshalintshali, a portfolio manager with Perpetua Investment Managers. “These are different quality businesses with different valuations.”
Although mergers of this nature are not unusual, there was a sense this was a merger driven by vested interests and that Shoprite shareholders would be the ones paying up.
“I suspect that from a Steinhoff shareholder perspective, the concerns were about what appeared to be a deviation from stated strategy, and from a Shoprite shareholder perspective the issue was about obtaining a fair price in the exchange of Steinhoff assets for Shoprite shares,” says Unathi Loos, analyst, Investec Asset Management.
Both counters recovered quickly after the talks termination.
None of the parties would comment beyond the Sens issued. “We don’t know who walked away,” says Graeme Ronne, CIO at Cadiz Asset Management, “because limited information has been released.”