- South African bidder looks beyond Brexit to expand in Europe
- Offer follows two failed attempts to buy retailers this year
Steinhoff International Holdings NV agreed to buy U.K. discount chain Poundland Group Plc for 597 million pounds ($794 million) as the South African company looks beyond Britain’s Brexit vote to strengthen its foothold in Europe.
Steinhoff’s cash offer is worth 222 pence a share, about 40 percent more than where the stock was trading before bid speculation sent it soaring last month. Poundland, whose aisles are filled with everything from plastic storage bins to sewing kits, rose 13 percent to 220.5 pence in London trading Wednesday.
The offer is “a knock-out price,” Wayne Brown, an analyst at Liberum, said in a note. “Significant downside risk existed if a bid did not materialize.”
Steinhoff, whose 2,300 stores sell a range of items from furniture to discount apparel, will need to revive growth at Poundland, which just embarked on a turnaround plan under new Chief Executive Officer Kevin O’Byrne. Its offer comes weeks after Britain’s surprise vote to leave the European Union, a decision that clouded the U.K.’s economic outlook and caused retailers’ shares to slump.
“Conditions in the U.K. market are changing almost by the minute, post the Brexit vote, and there is a good deal of uncertainty about,” said Jonathan Pritchard, an analyst at Peel Hunt. “Any strategic changes to Poundland will also take time, so all in, we think that Poundland shareholders get to a decent valuation quicker than they might have, but there is still plenty on the table for Steinhoff.”
The Brexit vote was a factor in the board’s decision to sell, Poundland Chairman Darren Shapland said in a phone interview. “We’ve negotiated pretty hard and we’ve got a good premium despite the situation,” he said.
The takeover would bring an end to Poundland’s short stint as a public company and leave some investors with a loss. After listing at 300 pence a share in March 2014, the share price fell as low as 139 pence in February.
In buying the 900-store chain, Steinhoff is finally getting its hands on a European retail prize, having been outbid earlier this year in efforts to buy Argos owner Home Retail Group Plc and French electronics retailer Darty Plc.
“There is significant merit in bringing Poundland into Steinhoff’s global network,” Steinhoff Chief Executive Officer Markus Jooste said. “Steinhoff is developing a fast-growing, price-led retail business across the U.K. and the rest of Europe.”
Steinhoff could combine Poundland with Pep & Co, its chain of 50 U.K. discount clothing stores set up by former Asda CEO Andy Bond, according to retail analysts at Exane BNP Paribas. Pep & Co plans to open as many as 15 new outlets later this year, it said in April.
For Poundland, the offer comes at a time when business is on a downward curve. Sales have been hurt by a surge in online shopping and a price war among the U.K.’s largest supermarket chains, while last year’s acquisition of the rival 99p Stores chain has also caused disruption. O’Byrne became CEO on July 1.
Steinhoff has indicated it will retain Poundland’s management “in perpetuity as long as they get on,” Shapland said.
Steinhoff made the offer after building a 24 percent stake in its target. Including undertakings to accept the bid, it already speaks for 30.6 percent of Poundland’s shares. Steinhoff’s shares were little changed at 5.35 euros at 11:16 a.m. in Frankfurt.
The 222 pence offer includes Poundland’s 2 pence full-year dividend. The target company was advised by JPMorgan Cazenove and Rothschild, while Investec acted for Steinhoff.