Discount chain Poundland is being bought by South African retailer Steinhoff International in a £597 million takeover which corporate advisors hope will be a kickstart to the stalled deals market in the UK.
Poundland accepted the 222p-a-share bid after rejecting a cash offer from Steinhoff last month for an undisclosed sum. The deal comes after Steinhoff – which owns UK furniture firm Harveys and Bensons For Beds – recently lost out in a battle with Sainsbury’s to buy Argos owner Home Retail Group in March and was outbid for London-listed white goods retailer Darty.
The sale price, which also includes a 2p-a-share final dividend on top of the 220p-a-share bid, marks around a 40 per cent premium to the value of Poundland’s shares in mid-June.
It follows a hefty slump in Poundland’s shares over the past year after tough trading and a difficult takeover of rival 99p Stores. Mega-mergers expert Professor John Colley of Warwick Business School said it was a “bold move” against a backdrop of stalled merger activity and economic uncertainty.
But he said that confidence in future trading conditions and Brexit were likely to have been important factors in Steinhoff’s decision.
“Discounters usually benefit from recessions as consumers become moreprice sensitive. Aldi, Lidl, and Primark have all seen increased traction since the 2008 recession,” he pointed out.
Neil Wilson of ETX Capital said that, on the face of it, Steinhoff’s move “looks a pretty good bargain” with the offer around half the level Poundland shares were trading a year ago.
“The weak pound makes this all the more attractive for the South African retailer – sterling has fallen around 20 per cent against the rand this year,” Wilson added.
Annual results recently laid bare Poundland’s sales woes as underlying pre-tax profits fell 13.5 per cent to £37.8m in the year to 27 March, while bottom-line pre-tax profits crashed 83.7 per cent to £5.9m, including converted 99p Stores.
Steinhoff had already built up a 23.6 per cent stake in Poundland in recent weeks as it stepped up its pursuit of the set-price retailer.
Darren Shapland, chairman of Poundland, said the deal gives investors an “opportunity to realise their shareholding at a certain and attractive price”.
He said it achieved the share price value targeted under its turnaround plan earlier than could be expected “against a background of increasing economic uncertainty in the UK and a more challenging trading environment”.
Steinhoff chief executive Markus Jooste said: “The board of Steinhoff and its management team are enthusiastic about the opportunities that this transaction brings: we believe that there is significant merit in bringing Poundland into Steinhoff’s global network.”
Shares rose by 12.6 per cent, or 24.75p, to close at 220.75p.