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Shoprite, PEP owner cancel merger talks as parties fail to agree terms

20 Feb 2017, 12:13 pm
Financial Nigeria
Shoprite, PEP owner cancel merger talks as parties fail to agree terms

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The companies said in a joint statement that shareholders failed to reach an agreement on the share-exchange ratio for the proposed deal.

Shoprite

Steinhoff International Holdings and Shoprite Holdings Limited, two South African retailers, announced today that they have ended their merger talks on combining their African retail businesses. The companies said in a joint statement that shareholders failed to reach an agreement on the share-exchange ratio for the proposed deal.

“Shareholders of the companies are hereby informed that the companies have decided to terminate their negotiations related to the proposed transaction as the PIC (Public Investment Corporation), Titan and Steinhoff could not reach agreement on the exchange ratio that would apply to the share exchange,” the companies said.

In December, Steinhoff and Shoprite announced they had launched merger talks to create what was expected to be Africa’s largest retail company, spanning groceries, furniture, food and clothing.

Under the proposed transaction, Shoprite was to acquire Steinhoff’s African operations, which include Pepkor Africa and Steinbuild. Shoprite was expected to then issue new shares to Steinhoff, giving the latter a significant stake in the enlarged Shoprite. The merged entity was to be called Retail Africa, with total revenue of 200 billion rand ($14.6 billion), pre-tax profit of 15 billion rand, and 180,000 employees.

The merger talks were initiated by their biggest shareholders, which include Christo Wiese – a billionaire businessman who owns 16 percent of Shoprite and 18 percent of Steinhoff – and the PIC, South Africa’s largest pension fund manager.

“This is a net gain for Shoprite investors, who were sure they would get the short end of the straw and not get what they think their assets are worth,” Michael Treherne, an analyst at Vestact, told Bloomberg. “Steinhoff investors are probably relieved that they are not taking on more risk, by taking on additional assets in Africa.”

Founded in 1964 in Germany, Steinhoff is an integrated retailer that sells furniture, household goods, and general merchandise in Africa, Europe, and Australasia. In 2014, Steinhoff paid $5.7 billion to acquire Pepkor Holding Limited, clothing retailer that operates Pep branded stores across southern Africa, including 50 stores in Nigeria.

According to Reuters, Shoprite investors’ refused to back the merger deal because they didn’t see significant cost savings from overlaps between Pepkor and Shoprite’s retail stores. Furthermore, the investors also considered Pepkor to be an inferior retail business compared to Shoprite, which is rapidly expanding across Africa.

Steinhoff’s stock traded 6.9 percent higher at €5.13 per share as of 11:19 a.m. in Frankfurt, where the company moved its main listing from Johannesburg in December 2015. Shoprite’s stock price rose 8.5 percent to 187.66 rand in Johannesburg, the highest since December 2016, according to Bloomberg.


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