Investors fret over Shoprite, Steinhoff deal
MINORITY investors in Shoprite are worried they will get a raw deal in the supermarket chain’s potential tie-up with international furniture and household goods merchant Steinhoff to create an African retail giant.
Under the proposed deal, Steinhoff will sell its African assets to Shoprite in return for a controlling stake in the R104-billion grocery chain, and Steinhoff will exchange its shares for those of Shoprite’s top two shareholders.
If approved, it will allow Steinhoff to hive off its struggling African assets – made up mainly of clo- thing, shoe and textile company Pepkor – into a new, separately listed merged entity called Retail Africa and possibly prompt a higher investor rating for its fast-growing European businesses.
But three minority shareholders in Shoprite are not in favour of a merger they say will short-change them and benefit Steinhoff investors and Christo Wiese, a top shareholder in both companies and the architect of the estimated R180-billion proposed deal.
The push back, although not enough to torpedo the deal at this stage, could complicate it if their views spread, and could test the retail billionaire’s determination to bring more of his assets under one roof.
At the heart of the Shoprite investors’ complaints are a lack of obvious cost savings from overlaps between Pepkor’s shoe, furniture and clothing chains, and grocery retailer Shoprite, and exchanging a stock with bigger potential for what they called inferior businesses.
Bataung Capital managing director and Shoprite shareholder Tota Tsotsotso said: “It’s a good deal for Steinhoff shareholders but it’s not a great deal for Shoprite shareholders.”
He declined to disclose the stake the fund holds in the company.
“Through this deal Shoprite will inherit some problematic businesses in Steinhoff, while Steinhoff will add a defensive, fast-growing supermarket chain to its portfolio,” Tsotsotso said.
Steinhoff’s African businesses, which include furniture store JD Group and electronics brand Incredible Connection, have been a drag on earnings due to weak consumer spending, slowing economies and faltering currencies.
Operating profit at those businesses grew just 1% last year, compared with a 16% rise at Steinhoff’s European chains and almost double in Australasia.
The deal has depressed Shoprite’s stock price. It had its worst one-day fall in more than a decade on December 14 when the talks were announced and has extended losses to about 15% at around R175 since then as of this week.
Benguela Global Fund Manager chief investment officer Zwelakhe Mnguni said a merger could further dampen a stock that has big upside potential.
“Our assessment is that this deal is not in the best interests of our clients,” Mnguni, whose firm owns nearly R1-billion worth of Shoprite shares, said.
“There are no obvious synergies in the deal, so the idea of creating an African retail giant doesn’t make sense.” Shoprite and Steinhoff have said the deal will not lead to job cuts. Another fund manager, who also owns shares in Shoprite, said the takeover appeared tailored to benefit Wiese, who told Reuters in September a merger would be a “natural development” as he continued to look for ways to consolidate his assets.
“I can’t see either party adding value to the other. It’s obviously in Christo Wiese’s long-term interests and doesn’t mean it’s in other shareholders’ interests,” 360ne Asset Management fund manager Evan Walker said.
Wiese, who initiated the tie-up along with the Public Investment Corporation (PIC), has 16% in Shoprite and 23% in Steinhoff, and is a board member in both. Government-owned pension fund PIC is the second-biggest investor in Shoprite and Steinhoff with 11% and 8% respectively.
The transaction would require the backing of 75% of both companies’ shareholders to go through.
It could be a sure thing if Wiese and the PIC are allowed to vote their shares.