Steinhoff in Exclusive Talks to Buy PPR’s Conforama

PPR SA Group chairman and CEO Francois-Henry Pinault
Francois-Henry Pinault, chief executive officer and chairman of the board of PPR SA Group. Photographer: Fabrice Dimier/Bloomberg

Steinhoff International Holdings Ltd., Africa’s largest furniture maker, entered into exclusive talks to buy PPR SA’s Conforama chain for 1.2 billion euros ($1.59 billion) in cash to strengthen its position in Europe.

Including assumed liabilities, the offer values France’s second-largest furniture retailer at 1.625 billion euros, said two people with knowledge of the matter, who asked not to be named because the discussions are private. PPR said the offer’s total value is more than 1.5 billion euros.

For Steinhoff, acquiring Conforama would add 241 stores to the Johannesburg-based company’s 951 retail outlets across Europe. PPR would move a step closer to its aim of focusing on its Gucci Group luxury goods unit and Puma AG sporting-goods division. The Paris-based company also plans to sell the Fnac music chain and mail-order retailer Redcats.

“We are very much in favor of the deal because we think it will greatly enhance Steinhoff’s ability to distribute its goods in Europe and it will cut the costs of distribution for Conforama,” said Wayne McCurrie, a fund manager at RMB Asset Management in Johannesburg, which holds shares in Steinhoff.

Steinhoff rose 1 rand, or 4.4 percent, to 23.60 rand in Johannesburg trading today, the highest since May, 2007. PPR shares fell 2.1 euros, or 1.7 percent, to 124.80 euros in Paris.

Shareholder Support

Excluding debt, the transaction would value Conforama at about 6.1 times 2009 earnings before interest, taxes, depreciation and amortization, Bloomberg calculations show.

“It certainly seems like a reasonable price and I think it’s a good deal for both PPR and Steinhoff,” said Mark Hodgson, an analyst Avior Research in Cape Town, who has a “buy” rating on Steinhoff.

The transaction has the support of more than 50 percent of Steinhoff’s shareholders and may conclude in the next few weeks after staff representatives are consulted, the companies said.

Steinhoff has been working to acquire Conforama for four years, Chief Executive Officer Markus Jooste said in an e-mailed response to questions from Bloomberg News.

The proposed purchase “will allow us to reinforce our position as one of Europe’s leading integrated furniture and household-goods companies,” Jooste said in a statement.

Steinhoff operates more than 50 factories in countries such as Poland, the Netherlands, Australia and South Africa, and has more than 1,100 retail outlets. It employs about 41,000 people.

PPR Acquisitions?

Conforama ranks behind Ikea in France and also has stores in Switzerland, Luxembourg, Spain, Portugal, Italy and Croatia.

The retailer’s earnings before interest, taxes, depreciation and amortization increased 32 percent to 83 million euros in the first six months of 2010 as sales rose 6.2 percent. Third-quarter sales gained 9.8 percent.

PPR may acquire more brands to bolster its luxury division and sports and lifestyle unit after selling one or two of the retail businesses, Chairman and CEO Francois-Henri Pinault said Oct. 18.

There have been 692 acquisitions announced in the retail industry in the past 12 months, according to Bloomberg data.

Burberry Group Plc, the U.K.’s largest luxury retailer, climbed as much as 6.6 percent in London trading yesterday on speculation that PPR may make a bid.

“Acquisitions in lifestyle are more likely than, say Burberry, which I think was an old idea,” said Luca Solca, an analyst at Sanford C. Bernstein.

‘A Bit Expensive’

Pinault is interested in buying Quiksilver Inc., La Tribune said today. He has reestablished contact with the California-based maker of clothing for skateboarders and surfers, as well as with Rhone Capital, which holds a 19 percent stake in Quiksilver, according to the newspaper.

Quiksilver rose as much as 18 percent in New York trading, increasing the company’s market value to about $897 million.

“My fear is that in having to go out and look for brands that aren’t dilutive on returns, they may today pay multiples that are a bit expensive, particularly in sports lifestyle,” Fabio Fazzari, an analyst at Equity Sim SpA, said of PPR.

“PPR will take the time to buy well as it takes the time to sell well,” spokeswoman Charlotte Judet said by e-mail, after earlier declining to comment on the La Tribune report.

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