Steinhoff International Holdings Ltd. (SHF) plans an initial public offering of its European unit that may raise 1.5 billion euros ($1.99 billion) to repay debt as Africa’s biggest furniture maker considers expanding in Latin America and eastern Europe.
The company would be able to cover all its debts should it sell 25 percent of the estimated value of its European business, Chief Executive Officer Markus Jooste, 51, said in an interview in Johannesburg on Feb. 20. “We’re in no hurry. We have no debt repayments or anything pressing us, so the beauty is we can time it for when the market is right.”
The listing will be in London, Paris or Frankfurt and may take 12 to 18 months to meet legal requirements. Steinhoff last year bought Conforama from Paris-based PPR SA (PP) for 1.21 billion euros to become Europe’s second-largest household goods retailer after Sweden’s Ikea Group (IKEA). The transaction boosted liabilities to 18.8 billion rand ($2.45 billion) by the end of June, giving Steinhoff a debt-to-equity ratio of 46 percent, the highest since it started trading its shares in 1998, although within its 50 percent threshold.
“A European listing would pay down inter-group debt and provide a representative market value for these assets,” said Mark Hodgson, an analyst at Avior Research (Pty) Ltd. in Cape Town, who has a “buy” rating on the stock. “Retaining approximately 75 percent control may limit investor appetite for the IPO and inhibit a full value unlock.”
Steinhoff gained 4.6 percent to a record 26.43 rand at the close in Johannesburg. Earnings per share in the six months ended Dec. 31 increased as much as 50 percent from a year earlier, boosted by the inclusion of Conforama, the company said yesterday after the market closed for trading.
“Debt has been one of the main reasons this share has been so cheap,” Wayne McCurrie, a fund manager at Johannesburg-based RMB Asset Management, said by phone today. Steinhoff trades at 10.6 times earnings, compared with 18.8 times for the 26-member FTSE/JSE Africa Industrial 25 Index (INDI25).
Steinhoff is looking to South America and eastern Europe, Jooste said, as acquisition targets in the west of the continent dry up in the wake of the credit crisis. The company will grow in eastern Europe by buying small retailers, with countries such as Romania and Turkey offering opportunities.
The acquisition of Conforama means there is “nothing of significant size left to buy in Europe,” Jooste said. Economic conditions in the region signals that “the height of acquisitions and takeovers in Europe is done.”
Steinhoff’s African unit will make the decision on when to enter Latin America, he said, without specifying which business areas the company will target.
Steinhoff owns stakes in companies that produce and source materials such as timber, foam and bed springs, manufacturing facilities that make and assemble furniture and retail outlets that sell the products. It also owns the transport companies that move the goods.
Steinhoff seeks to hold majority stakes without having to take the day-to-day responsibilities of the units. Steinhoff also aims to own the properties on which its businesses operate.
“Our job is to be the glue,” Jooste said, adding that Steinhoff prefers to provide funding and focus on ensuring subsidiaries benefit from being linked.
The company is completing a series of transactions in South Africa to gain control of JD Group Ltd. (JDG), a furniture and household goods retailer, and KAP International Holdings Ltd. (KAP), a maker of textiles, clothing and automotive components.
It plans to grow KAP International’s diversified industrial businesses, including timber operator PG Bison, Steinhoff Raw Materials and Unitrans Supply Chain Solutions, in the rest of Africa, Jooste said.
“We’ll use KAP to live out the African dream of a large industrial company,” he said. Jooste, who has led Steinhoff since 2000, lives near Cape Town in Stellenbosch, where he completed an accounting degree in 1982.
JD Group (JDG) will lead Steinhoff’s retail expansion in Africa. The furniture and appliance dealer will open its first Zambian store in April and expand into Ghana and Mozambique within 18 months, Chief Executive Officer Grattan Kirk said Feb. 20.
Steinhoff also sees potential links between JD Group, which offers store credit cards, and PSG Group Ltd. (PSG)’s Capitec Bank Holdings Ltd. (CPI), which provides unsecured loans. Steinhoff owns 20 percent of PSG, which owns 34.6 percent of Stellenbosch-based Capitec.
JD Group and Capitec haven’t yet decided on how they can cooperate, Jooste said.
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