So much for the Neverendum putting a stop to merger and acquisition activity. In the past two weeks we have seen two takeover situations for UK companies from overseas investors.
Premier Farnell, the British maker of budget computer the Raspberry Pi, agreed to be sold to Dätwyler, of Switzerland for £615m. And Steinhoff International, the aggressive South African company in desperate search of a deal, announced that it was considering making an offer for retailer Poundland, which last week reported a near 84% plunge in pretax profits.
Premier Farnell’s deal is in some ways not too surprising and was welcomed by most as it comes at a time when the group is battling after its chief executive left and two profit warnings. However, the most interesting potential deal in the offing is Steinhoff’s tilt at Poundland in what the South Africans must hope will be third time lucky.
Steinhoff, dubbed Africa’s Ikea and the owner of Harveys and Bensons for Beds in the UK, has already tried and failed to takeover Argos owner Home Retail Group and the London-listed Darty, which sells electronics across Europe.
Its approach in both instances was very different. Steinhoff gatecrashed Sainsbury’s bid for Home Retail very late in the day only to slink away with barely a fight. Steinhoff’s fight for Darty, on the other hand, was very public, very intense and very embarrassing when it lost amid a flurry of bids and counterbids with FNAC, a French rival, which sent shares in Darty soaring.
Last week, Steinhoff moved to buy all of Warburg Pincus’ shares in Poundland and hoovered up a few others to make it the largest shareholder in the retailer, with a 23% stake. Steinhoff then announced it was considering making a bid for Poundland, in a move which one M&A banker described to me as a “fairly hostile” opening gambit.
Anyone who has watched the Proteas or Springboks lose knows that the South Africans hate not coming out on top, and if Steinhoff does make an offer for Poundland it will want this one to stick.
So, what do we know about Steinhoff? It is listed on the Johannesburg Stock Exchange and has been run for nearly two decades by Marcus Jooste, a keen owner of racehorses and a prodigious dealmaker. Last year, the group listed in Frankfurt with a market capitalisation of €19bn (£14.7bn) in a move that gave it even greater firepower to do deals.
Steinhoff has always grown through mergers and acquisitions – its interest in Darty can be explained by the fact it owns Conforama, a French furniture chain it bought in 2011 for almost £1bn.
Last year in its home country it struck the largest deal in South African history, buying shoe chain Pepkor for £4bn. This deal also brought the redoubtable Christo Wiese onto the Steinhoff share register with a circa 17% stake. Wiese owned Pepkor and is also friends with Jooste.
Wiese is no stranger to the UK market, having separately through his Brait vehicle secured majority stakes in fashion chain New Look, Virgin Active gyms and Iceland Foods. The billionaire has also teamed up with former Asda boss Andy Bond to develop a new UK discount fashion chain called Pep & Co.
This means Steinhoff is a very acquisitive company with cash to splurge, access to global capital markets and a large shareholder with a healthy appetite for big takeover deals.
If a bid comes (and Steinhoff has until 13 July to “put up or shut up”), Poundland will have its work cut out. Last week the chain announced a steep fall in profits after a lengthy competition inquiry into its takeover of 99p Stores made integration of the two businesses very difficult.
Poundland is also in the process of changing chief executives, with veteran retailer Jim McCarthy making way for Kevin O’Byrne, the former boss of B&Q UK. Whatever plans O’Byrne had for his first few weeks in the job could now have to be swept aside to mount a defence against Steinhoff.
Given that Poundland listed at 300p per share and its shares are well off last February’s peak of 418.9p, Steinhoff’s possible bid looks very opportunistic. If I had to call it, I would say Steinhoff is odds on to follow up with a formal bid and the scene is set for a battle.
Deirdre Hipwell is retail and M&A editor at The Times
