Steinhoff’s JD Bid Points to Insufficient Rights Offer

JD Group Ltd.’s rights offer last month wasn’t enough to cure the furniture retailer’s ills, leading Steinhoff International Holdings Ltd. to bid for shares to shore up the company, according to Jean Pierre Verster, a fund manager at 36ONE Asset Management.

Steinhoff, a furniture manufacturer, offered 1 share for every 1.9 JD Group share two days ago as it seeks to increase its stake to 98 percent from 56.8 percent. The 2.6 billion rand ($238 million) offer is equivalent to 27.77 rand a share, a 26 percent premium to JD Group’s closing price the previous day.

JD Group said Feb. 11 it would sell shares worth as much as

1.5 billion rand as it raised bad debt provisions. The rights issue was fully underwritten by Steinhoff.

“Steinhoff must have also considered the rights offer to be insufficient and a script deal meant it didn’t have to find cash,” said Verster, who helps oversee the equivalent of more than $1.1 billion at 36ONE in Johannesburg.

JD Group had a net loss of 138 million rand for the six months through December. South African retailers have been struggling amid high unemployment and slower economic growth. South Africa’s Reserve Bank raised borrowing costs in January for the first time since 2008, increasing pressure on retailers such as JD Group that offer credit to shoppers.

Out of 10 analysts that share their recommendations with Bloomberg, five rate the company’s shares sell and five recommend holding the stock.

‘Caught Short’

JD Group lost 4.3 percent to 26.70 rand at close in Johannesburg, giving the company a market value of 6.1 billion rand. The stock jumped 28 percent on March 18, the day of Steinhoff’s offer, the biggest gain on record according to data compiled by Bloomberg.

“The outlook for JD Group hasn’t been great and I think there are investors who were caught short on the stock,” said Henre Herselman, a derivatives trader at Nedbank Private Wealth in Johannesburg.

In 2007 Steinhoff offered 3.6 shares for every JD Group share in a bid for JD Group that was worth about 15.2 billion rand. JD Group ended those talks because of opposition from some investors, which were not identified.

Steinhoff said its purchase will help support JD Group, which is facing “many challenges in the furniture retail and consumer finance business segments.” The difficulties will “take some time and additional capital to overcome.”

Steinhoff’s shares fell for a second day, sliding 2.6 percent to 50.63 rand, paring its gain this year to 12 percent and giving the manufacturer a market value of 105.1 billion rand.

(Corrects currency conversion in second paragraph.)
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