Shoprite and Steinhoff in merger talks to form retail giant

Cape Town - Shoprite [JSE:SHP] and Steinhoff [JSE:SHF] issued a cautionary statement on Wednesday, advising shareholders that the two companies are in talks about the potential of combining the operations of the two businesses to form a new retail entity called Retail Africa. 

In a statement to shareholders, the two companies said the vision to create Retail Africa - "which will be a formidable entity that has its roots firmly entrenched in Africa" - is shared by Shoprite's largest shareholders the Public Investment Corporation and Titan, a family trust owned by Shoprite chairperson Christo Wiese.

"Accordingly, both shareholders have indicated that they are fully supportive of an initiative which could lead to the creation of Retail Africa, the statement read.

In terms of the proposed transaction, it is envisaged that Shoprite will acquire Steinhoff's African retail operations which consist 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.

In terms of the proposed transaction, Shoprite will in addition acquire the JD Group consisting of 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).

"Shoprite will issue new ordinary shares to Steinhoff in consideration, pursuant to which Steinhoff will receive a significant equity interest in Shoprite," according to the statement.

The announcement is on the back of market expectations about a possible merger between the two retail giants after Wiese announced he would retire at the end of 2016. One of the richest men in South Africa, he is the largest shareholder of Shoprite (16%) and Steinhoff (18%). 

READ: Wiese's talk of a merger hurting Steinhoff - analyst

The value for Steinhoff Africa Retail will be negotiated taking into account the best interests of both Steinhoff and Shoprite shareholders. 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.

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.

The newly-formed entity is expected to be the largest retailer in Africa which will employ about 186 000 people; the combined group's growth plans could lead to future job creation in various countries.

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 statement said.

READ: Wiese: Steinhoff, Shoprite tie-up would be a 'natural development'

"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," it said.

At 15:40, Shoprite's share price was 6.54% lower at R180.20, while Steinhoff traded 7.4% down at R70.36.