Under the proposed all-share deal, Shoprite would acquire Steinhoff’s African retail operations, including Pepkor Africa and JD Group, the companies said.
That business could end up under Steinhoff’s control via a share swap, the companies added.
Shareholders of Steinhoff and Shoprite were recently informed that the largest shareholders of both companies, namely the Public Investment Corporation SOC Limited (“PIC”) and Titan Premier Investments Proprietary Limited (“Titan”) recently initiated and facilitated discussions between the Steinhoff and Shoprite boards of directors regarding the potential combination of their respective African retail businesses, with the objective of establishing a diversified African retail business of significant scale and international geographical reach that could be regarded as the retail champion of Africa.
Titan is controlled by a family trust of Dr. Christo Wiese, the billionaire (third richest in Africa, according to Forbes) who is also the largest shareholder in Steinhoff and Shoprite.
The combined firm would employ 186,000 people and would have generated around N$200 billion in revenue in the year to June 30, 2016.
“The vision to create Retail Africa, which will be a formidable entity, having its roots firmly entrenched in Africa, is shared by both the PIC and Titan.
Accordingly, both shareholders have indicated that they are fully supportive of an initiative which could lead to the creation of Retail Africa,” said the two companies in a Steinhoff/Shoprite -Joint detailed cautionary announcement relating to the establishment of African retail champion issued on the Namibian Stock Exchange.
“Shoprite will issue new ordinary shares to Steinhoff in consideration, pursuant to which Steinhoff will receive a significant equity interest in Shoprite. The value for Steinhoff Africa Retail will be negotiated taking into account the best interests of both Steinhoff and Shoprite shareholders,” the two announced.
The proposed transaction, according to the two parties, is expected to position the combined businesses of Retail Africa as the leading multi-format discount retailer on the African continent.
“Retail Africa, locally bred, will have the required size and scale to compete with any other international retailer, making it a compelling value proposition for Retail Africa´s value conscious African customer base.”
It further added that the transaction will further enhance Retail Africa´s position as an employer of choice and it is also anticipated that the Proposed Transaction will not result in any job losses.
The combined group´s growth plans could lead to future job creation in various countries, the companies said in the joint statement.
In addition to the above, the statement notes, Steinhoff has entered into an in principle agreement with the PIC and Titan to acquire their interests in Shoprite as part of the Proposed Transaction in the form of a Steinhoff share-for-Shoprite share exchange, subject to an exchange ratio to be agreed which may ultimately result in Steinhoff acquiring control of Retail Africa.
“This Exchange Ratio will be negotiated taking into account the consideration price for Steinhoff Africa Retail on the basis that the Proposed Transaction will not be earnings dilutive to Steinhoff shareholders.”
Steinhoff may also be required to extend a mandatory offer based on the same Exchange Ratio to other Shoprite shareholders to acquire their Shoprite ordinary shares.
“If this is the case, such Offer will be in the form of a Steinhoff share-for-Shoprite share exchange, at the Exchange Ratio.
Shoprite shareholders will, however, at all times have the election right to retain their exposure to listed Retail Africa directly or be free to choose to accept the Offer, should it be made,” the statement indicated.
The two companies however assured shareholders that maintaining Retail Africa´s separate listing on the Johannesburg Stock Exchange and commitment to the preservation of an appropriate free float of Retail Africa ordinary shares is fully supported.
“The Proposed Transaction will result in Steinhoff´s African exposure being held through a strategic interest, within a separately listed entity with sufficient liquidity, which can be independently valued as an African retail champion. Additionally, through Retail Africa, Steinhoff´s African assets will be exposed to additional growth opportunities.”
The two said in the statement that the Proposed Transaction would allow Steinhoff, as a group, to strengthen its exposure and relevance to the African consumer, through the diversified global retail platform that would include Africa´s leading fast moving consumer goods, household goods and furniture retailer.
“It is expected that Retail Africa´s value proposition will provide its shareholders with a sustainable business where the growth and margin improvement opportunities are greater than the current individual businesses.
The collective product ranges, expertise, infrastructure and size of Retail Africa will provide a unique and differentiated customer value proposition, operating in South Africa and in 14 African countries in which established infrastructure sharing will take place,” the statement further reads.
What the deal will culminate into:
If the negotiations are concluded and agreed upon by both parties, it is envisaged that Shoprite will acquire Steinhoff´s African retail operations, consisting of:
- Pepkor Africa: Pep SA, Ackermans, Speciality Group, including Shoe City, John Craig, Refinery and Dunns, as well as the Pep and Ackermans African operations;
- JD Group: Russells, Bradlows, Rochester, Incredible Connection, Hi-fi Corporation, Sleepmasters and financial services;
- Steinbuild, including Buco, Pennypinchers, Timbercity and Hardware Warehouse; and Tekkie Town (collectively known as “Steinhoff Africa Retail”).