JD minorities laugh all the way to bank

Steinhoff to steer furniture group

FURNITURE manufacturer Steinhoff has long wanted JD Group to distribute its products. But given JD’s poor performance and muted outlook, one may wonder whether Steinhoff is making an offer for the retail group because it still sees potential — or because it is too far down the path to walk away.

In 2007, Steinhoff made a R15-billion bid for the JD Group, but JD shareholders refused to bite.

This week, almost seven years to the day, Steinhoff said it would increase its 56.8% stake in the group (which it bought last year) to 98%, at a price equivalent to R27.77 a JD Group share, a 26% premium on its closing price on Monday.

Steinhoff is in the pound seats — it has insight into what the company is doing

JD’s market cap today is just over R6billion, a far cry from the R17-billion it was seven years ago. Steinhoff’s market cap is R105-billion, up from R28.2billion seven years ago, and its share price has more than doubled over the past year (though it dipped on news of the bid for JD). JD’s share price has dropped about 20% over the year.

Steinhoff said this week its purchase would help support JD Group, which faced challenges in the furniture retail and consumer finance business segments.

Last month, Steinhoff said it would raise money to fund the JD Group, but the shift in strategy suggests that was not going to be enough to put the furniture retailer back on track and take care of nonperforming loans.

Jean Pierre Verster, fund manager at 36ONE Asset Management, said Steinhoff’s offer was a “get-out-of-jail” card for the JD Group minority shareholders after management had destroyed value in growing the loan book so strongly over the past 18 months.

He said the rights issue, planned at R1.5-billion, was insufficient to cover the size of the nonperforming loans.

JD accounts for only 5% of the market capitalisation of Steinhoff.

“For Steinhoff it’s mildly negative, and for JD minorities it’s a nice premium,” said Verster.

Prospects in the furniture industry are bleak. Consolidation and store closures are likely to be features of the industry for some time.

Piet Viljoen, chairman of RECM, which owns 7.1% of JD, would not comment on the merits of the offer, but said it was happy that Steinhoff had come in as a controlling partner.

“We have full confidence in their ability to turn around the business in the long term. JD needs the management quality that Steinhoff can provide.”

Shareholder activist Theo Botha said nonexecutive directors of the JD Group had a duty to guide minority shareholders on the offer, but the group was rudderless and did not have a permanent CEO as David Sussman was on compassionate leave.

Details on the profile of the debtor’s book were not forthcoming, leaving shareholders with unanswered questions about the extent and severity of the book’s decline. Botha had requested this information, but JD refused to provide a breakdown of the book.

Botha pointed out there were many Steinhoff placements on JD’s board. “Steinhoff is in the pound seats — it has insight into what the company is doing and how it’s doing.”