Is Steinhoff Planning A Shoprite Takeover? Merger Could Create A Firm To Rival Walmart

Written by Dana Sanchez

South African furniture maker Steinhoff International and Shoprite, Africa’s biggest supermarket chain, are in talks to combine their African assets through an equity swap to create the continent’s largest retailer.

The deal is being brokered by one of South Africa’s richest men, Christo Wiese, who is also the largest shareholder in Steinhoff and Shoprite.

The proposed deal to combine part of their businesses will create an African discount retail giant known as Retail Africa, Financial Times reported.

If all goes according to plan, Shoprite will acquire Steinhoff’s African retail operations including Pepkor Africa and JD Group, the companies said. The new business could end up under Steinhoff’s control via a share swap, the companies said, according to Wall Street Journal.

Shoprite is also expected to buy Steinhoff’s Steinbuild and Tekkie Town, Independent Online

The largest shareholders in both companies — Wiese and South Africa’s state-run pension fund, the Public Investment Corporation (PIC) — initiated the talks.

The goal is to create a “diversified African retail business of significant scale and international geographical reach that could be regarded as the retail champion of Africa,” IOL reported.

“From Shoprite’s perspective, the proposed transaction is expected to position the combined businesses of Retail Africa as the leading multi-format discount retailer on the African continent,” the companies said in a joint statement. “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.”

If the entity had been combined in 2016, it would have generated around $14.6 billion in revenue in the year to June 30, 2016, WSJ reported. The combined entity will employ 186,000 people.

“It’s going to be quite a complex group,” said Unathi Loos, an analyst at Investec Asset Management in Cape Town, according to WSJ. “It’s quite difficult to get a handle on what the value will be. (Shoprite is) getting quality assets, but what are you going to pay for it?”

Analysts will be watching the separately listed company, Retail Africa, as a potential prelude to a full takeover of Shoprite by Steinhoff that could be worth up to $30 billion, Financial Times reported.

Steinhoff has been expanding outside South Africa in recent years, acquiring Mattress Firm in the U.S. and Poundland in the U.K.

Shoprite has stores in 15 African countries. The combined new firm would acquire assets in Pepkor, the retailer that Steinhoff bought for nearly $6 billion two years ago.

Steinhoff would also buy stakes in Shoprite owned by the PIC and Wiese’s family trust, “which may ultimately result in Steinhoff acquiring control of Retail Africa,” the two companies said in a prepared statement.

Wiese owns 16 percent Shoprite and 18 percent of Steinhoff. It would be a “natural development” for Steinhoff to take over Shoprite eventually, Wiese told Reuters in September.

If Steinhoff and Shoprite merge completely, the resulting retail empire will have more than 9,000 stores on every continent but Asia, compared with Walmart’s 11,500 stores globally.

Steinhoff sells lower-end furniture, apparel and household goods. Bringing the two together would allow him to add groceries to his massive discount empire, Reuters reported.