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Johannesburg - South Africa's Steinhoff is considering making a takeover offer for Poundland, it said on Wednesday, sending shares in the British discount chain surging.
Steinhoff's interest in Poundland is its third attempt to buy a European retailer after losing out to rivals in two separate battles for Britain's Home Retail and France's Darty earlier this year.
Under UK takeover rules, the $22bn (R336bn) furniture conglomerate led by CEO Markus Jooste and South African billionaire Christo Wiese has until July 13 to announce a firm intention to bid for Poundland.
“It does seem like they are being incredibly opportunistic,” Bryan Roberts, an analyst at TCC Global, told Bloomberg. “Poundland doesn’t tie in immediately with any of their existing businesses. With Argos and Darty there was a clear overlap in electronics and household products.”
In an intial response, Poundland told its shareholders to take no action for the moment, noting that there was no certainty than an offer would be made.
By 09:10 GMT, shares in Poundland were up 4% at 203.25 pence, their highest level since early January, valuing the company at more than £500m (R10.84bn).
Steinhoff's potential offer comes after US private equity firm Warburg Pincus disclosed on Tuesday that it had sold its entire stake of 15.3% in Poundland ahead of an annual earnings report from the company due on Thursday. The buyer’s identity was not disclosed, but Steinhoff hinted it was the mystery buyer.
"The board of Steinhoff notes the recent share price movement in the share price of Poundland Group ... and confirms that it is considering a possible offer for the entire issued share capital of Poundland," the company said in a statement on Wednesday. "This announcement has been made without the consent of Poundland."
“Given the low margin at Poundland it would not take much in terms of central cost savings to create sufficient synergies to drive a good return from this acquisition,” Graham Renwick, an analyst at Exane BNP Paribas, said in a note.
Warburg Pincus originally listed the discount retailer in March 2014 at a price of 300 pence per share. The shares had been trading down 25% so far this year before the private equity firm sold its stake.
Poundland sells everything at the single price point of £1 in its British stores and also has operations in Ireland and Spain.
Sales growth has slowed, profits are expected to fall in its 2015-16 financial year and its purchase of rival 99p Stores for 55 million pounds in 2015 has proved problematic, raising questions over the durability of its single price model.
"Traders were tipped off to the stakebuilding after Investec handled a single off-market trade of 40.9m shares at 195p apiece, against an undisturbed price of 155p," the Financial Times reported on Wednesday.
"Traders speculated that South African peers Steinhoff and Brait could be interested. But it was unclear why any bidder would make its move ahead of a quarterly trading update scheduled for tomorrow."
Poundland, Europe’s largest value general merchandise retailer, reacted quickly on Wednesday.
"Poundland shareholders are strongly advised to take no action. The company will issue a further statement if and when appropriate," the Telegraph quoted the company as saying on Wednesday, confirming the bid interest. "There can be no certainty that a firm offer will be made, nor as to the terms on which any firm offer might be made."
Even after the recent share gains, Poundland stock is still about 30% below the 300 pence a share that investors paid in a 2014 initial public offering.
- Additional reporting by Bloomberg and Fin24.
