Publications
Partners
Steinhoff – inevitably, we suppose – has started a process to spin off its South African assets to focus on its European furniture business. It’s been widely speculated Steinhoff would unbundle its local operations after acquiring French furniture retailer Conforama, making the local group Europe’s second biggest furniture retailer.
But by chucking Unitrans Auto and Steinbuild into a furniture empire, JD Group took many by surprise. Apart from the conspicuous absence of a natural fit in the merging businesses, questions have also been raised about whether JD may not have put its recovery in jeopardy by venturing into new terrain shortly after separating its retail and financial services businesses.
Steinhoff and JD jointly announced last Monday a R3bn deal that will see the latter acquire Unitrans Automotive, one of the four largest motor vehicle retailers in SA, and Steinbuild, owners of building supplies and DIY businesses Timbercity and Pennypinchers. JD will pay for the businesses via the issue to Steinhoff of 60,7m fully-paid JD Group shares, representing 26% of its issued share capital. In addition, Steinhoff will take over JD’s Polish furniture retail business Abra for R134m, to be settled by a reduction in the number of JD Group shares to be issued for the acquisition of Unitrans Auto and Steinbuild.
JD executive chairman David Sussman says the proposed transaction will provide the group with a large new customer base, allowing it to cross-sell new financial services products. It will enhance JD’s position as a diversified retail and consumer finance services provider of scale.
In particular, Sussman says JD’s financial services division lacks critical mass, which he hopes to gain from Unitrans’s client base. At the same time, vehicle finance isn’t readily available for JD’s target market, which will in turn open up a market for its customers. “That’s why we think this is a good transaction. Of course, it’s not going to be a ‘big bang’ thing. We’ll be doing it on a gradual basis,” says Sussman.
However, some analysts are less convinced about the deal. “For Steinhoff, the transaction is an elegant way of disposing one of its SA assets,” says Nedbank Capital retail analyst Syd Vianello. He says Steinhoff will gradually spin off its South African assets to become a European furniture business. “But for JD it’s a complex transaction. It’s entering a field it isn’t familiar with.” Vianello sees no common denominator in the furniture, buildings supplies and motor vehicle retail sectors. He adds interest rates may soon go up, triggering a halt in vehicle sales, which may not be good for JD.
Chris Gilmour, of Absa Asset Management, says JD can quite easily absorb Timbercity and Pennypinchers because they are essentially retail businesses. However, he also can’t get his head around Unitrans Auto being bundled into JD.
Perhaps the worry stems from lessons from the ill-conceived deal between McCarthy and Prefcor retail group, previous owners of Game and Beares. Economic conditions may have changed since then but it’s worth noting that when Prefcor couldn’t manage its bad debt, McCarthy was almost brought to its knees.
But who would Steinhoff have offloaded Unitrans Auto on to? There seems to be limited options, other than Steinhoff unbundling the whole Unitrans business rather than a piecemeal sale. Steinhoff believes the automobile and logistics businesses are completely separate despite being clubbed together. Sussman says there should be no fear that Unitrans Auto may be buried under JD. “Unitrans is an excellent business with wonderful management. Nothing will change,” he says.
Steinhoff and JD have had long-term relations. As a furniture maker, Steinhoff is a trusted supplier to JD. In 2007 the parties planned to merge but couldn’t get enough shareholder support. Another analyst likened Steinhoff’s proposed 26% holding in JD after the transaction as a “reverse takeover” in pursuit of the 2007 project.
But by chucking Unitrans Auto and Steinbuild into a furniture empire, JD Group took many by surprise. Apart from the conspicuous absence of a natural fit in the merging businesses, questions have also been raised about whether JD may not have put its recovery in jeopardy by venturing into new terrain shortly after separating its retail and financial services businesses.
Steinhoff and JD jointly announced last Monday a R3bn deal that will see the latter acquire Unitrans Automotive, one of the four largest motor vehicle retailers in SA, and Steinbuild, owners of building supplies and DIY businesses Timbercity and Pennypinchers. JD will pay for the businesses via the issue to Steinhoff of 60,7m fully-paid JD Group shares, representing 26% of its issued share capital. In addition, Steinhoff will take over JD’s Polish furniture retail business Abra for R134m, to be settled by a reduction in the number of JD Group shares to be issued for the acquisition of Unitrans Auto and Steinbuild.
JD executive chairman David Sussman says the proposed transaction will provide the group with a large new customer base, allowing it to cross-sell new financial services products. It will enhance JD’s position as a diversified retail and consumer finance services provider of scale.
In particular, Sussman says JD’s financial services division lacks critical mass, which he hopes to gain from Unitrans’s client base. At the same time, vehicle finance isn’t readily available for JD’s target market, which will in turn open up a market for its customers. “That’s why we think this is a good transaction. Of course, it’s not going to be a ‘big bang’ thing. We’ll be doing it on a gradual basis,” says Sussman.
However, some analysts are less convinced about the deal. “For Steinhoff, the transaction is an elegant way of disposing one of its SA assets,” says Nedbank Capital retail analyst Syd Vianello. He says Steinhoff will gradually spin off its South African assets to become a European furniture business. “But for JD it’s a complex transaction. It’s entering a field it isn’t familiar with.” Vianello sees no common denominator in the furniture, buildings supplies and motor vehicle retail sectors. He adds interest rates may soon go up, triggering a halt in vehicle sales, which may not be good for JD.
Chris Gilmour, of Absa Asset Management, says JD can quite easily absorb Timbercity and Pennypinchers because they are essentially retail businesses. However, he also can’t get his head around Unitrans Auto being bundled into JD.
Perhaps the worry stems from lessons from the ill-conceived deal between McCarthy and Prefcor retail group, previous owners of Game and Beares. Economic conditions may have changed since then but it’s worth noting that when Prefcor couldn’t manage its bad debt, McCarthy was almost brought to its knees.
But who would Steinhoff have offloaded Unitrans Auto on to? There seems to be limited options, other than Steinhoff unbundling the whole Unitrans business rather than a piecemeal sale. Steinhoff believes the automobile and logistics businesses are completely separate despite being clubbed together. Sussman says there should be no fear that Unitrans Auto may be buried under JD. “Unitrans is an excellent business with wonderful management. Nothing will change,” he says.
Steinhoff and JD have had long-term relations. As a furniture maker, Steinhoff is a trusted supplier to JD. In 2007 the parties planned to merge but couldn’t get enough shareholder support. Another analyst likened Steinhoff’s proposed 26% holding in JD after the transaction as a “reverse takeover” in pursuit of the 2007 project.
