Poundland agrees to takeover from Steinhoff International

Discount chain Poundland has agreed to a £597m takeover by South African retail group Steinhoff International.

Steinhoff said Poundland would be a "complementary fit" to its expansion plans in the UK and the rest of Europe.

Poundland operates more than 900 stores across the UK, Ireland and Spain, and employs 18,000 people, but recently announced falling profits.

Steinhoff owns 40 retail brands in 30 countries, including Bensons for Beds and Harveys in the UK.

Steinhoff has already built up a 23% stake in Poundland, and last month made an informal approach to buy the firm, which was rejected.

Last month, Poundland reported a fall in full-year profits as it admitted the integration of 99p Stores, which it bought in September last year, had placed a "strain" on its business.

Steinhoff is paying 222 pence per share for Poundland. The discount retailer's share price had fallen from 418p in February 2015 to below 200p before the deal was announced.

Poundland chairman Darren Shapland said: "The Poundland board believes that Steinhoff's allcash offer presents Poundland shareholders with an opportunity to realise their shareholding at a certain and attractive price."

The pound has also dropped about 15% against the rand since Steinhoff made its approach for Poundland in June.

"The weak pound makes this all the more attractive for the South African retailer," said Neil Wilson, analyst at ETX Capital.

"Expanding its operations in Europe should act as a useful hedge against rand volatility and exposure to South Africa's stagnant economy."

Shares in Poundland, based in Willenhall in the English West Midlands, rebounded 12% to 220p on Tuesday following news of the deal.

Analysts said the outlook for Poundland and other discount stores in the UK looked bright given that the vote to leave the EU is expected to dent economic growth.

"Prospects look good for Poundland," said Jonathan Pritchard, retail analyst at Peel Hunt. "A possible consumer downturn plays into discounters' hands as consumers looking to save cash trade down."

However, the fall in sterling's value may force Poundland into a change of strategy, and ultimately to drop the single price point it trades on, in favour of becoming a general discount store chain like Home Bargains or B&M.

"It operates on wafer-thin margins, so in the medium term, their strategy may be to look for a wider product range to offset the fall in the currency," said Greg Bromley, senior analyst at Verdict Retail.

But he added that any such move was unlikely to happen within the next year, and that it would present opportunities to rivals.

Steinhoff has been trying to increase its exposure in Europe this year. The purchase of Poundland comes after an unsuccessful attempt to buy Argos owner Home Retail Group, when Sainsbury's ended up as the successful bidder.

Steinhoff also failed in an attempt to buy French electronic goods retailer Darty.