Steinhoff to Buy Africa Retailer Pepkor in $5.7 Billion Deal

By Janice Kew and Michael Cohen

Steinhoff International Holdings Ltd. (SHF) agreed to buy Africa’s Pepkor Holdings Pty Ltd. for 62.8 billion rand ($5.7 billion), adding clothing for the first time as the furniture retailer seeks to become one of the world's biggest discounters.
Steinhoff will purchase a 92.3 percent stake in closely held Pepkor, South Africa's biggest retailer, the Johannesburg-based company said today. Sellers including South African billionaire Christo Wiese will hold a minority stake in the enlarged business.
“Having a global discount player in the top five in the world is a shared vision of Steinhoff and Pepkor,” Markus Jooste, Steinhoff’s chief executive officer, said at
a Cape Town press conference. “A vision of being in all facets of retailing and have a company that can tackle the world.”
The transaction, the largest purchase of a South African company in more than a decade, sent Steinhoff shares up as much as 4.7 percent in Johannesburg. In addition to African chains Pep and Ackermans, the purchase gives Steinhoff the largest non-food retailer in Poland and Australia’s Best & Less. Steinhoff’s operations span three continents, with the 2011 acquisition of Conforama adding stores in France, Spain and Italy.

Photographer: Nadine Hutton/Bloomberg

Customers are seen at the entrance to a Pepkor Ltd. store in Johannesburg, South... Read More

‘Competitive Advantage’

“The motivation strategically makes a lot of sense,” said Nic Norman-Smith, chief investment officer at Lentus Asset Management in Johannesburg. “How to build a competitive advantage is by scale -- you are able to extract synergies through logistics, group buying power and procure goods at a cheaper price. It’s a virtuous circle.”
Pepkor will assist Steinhoff in its goal to tap further into discount retailing in South Africa as more shoppers seek out value amid high inflation and a 25 percent unemployment rate. South African retailers have struggled this year as the economy is set to grow at its slowest pace in five years.
Steinhoff, the country’s biggest furniture company, traded 4.5 percent higher at 58.50 rand as of 12:53 p.m. in Johannesburg, valuing the retailer at 146.9 billion rand. The company in June said it’s seeking a listing on the Frankfurt Stock Exchange to increase its exposure to investors on the continent, where it was founded in 1964.

6,000 Stores

The combined business will have more than 155 billion rand in annual sales and in excess of 6,000 stores. With outlets across Africa, Australia and Eastern Europe, Pepkor operates brands including Pep, Shoe City, and John Craig.
“These are two very different animals coming together and there will be a lot of work to be done,” David Shapiro, a director at Johannesburg-based money manager Sasfin Securities, said by phone. “It seems like this was a deal Wiese wanted and he was pulling the strings.”
Steinhoff is paying about 14 times Pepkor’s earnings before interest, tax, depreciation and amortization.
The price “looks quite expensive,” Norman-Smith said. The purchase multiples are “similar” to Shoprite Holdings Ltd., South Africa’s largest retailer, he said.
Steinhoff is buying a 52.5 percent stake in Pepkor owned by Titan Premier Investments Proprietary Ltd., controlled by Wiese, and another 37.1 percent from Brait Mauritius Ltd. Brait shares fell as much as 24 percent in Johannesburg.
Investec Bank Ltd. advised on the acquisition, along with Citigroup Global Markets Ltd., Deutsche Bank AG, Barclays Plc and Commerzbank AG. Titan was advised by Rand Merchant Bank and HSBC Bank Plc.
No regulatory hurdles are anticipated and the deal should complete in the first half of 2015, according to Steinhoff.