Steinhoff International Holdings NV and Shoprite Holdings Ltd. ended talks to create Africaâ€™s biggest retailer after negotiations with shareholders including billionaire Christo Wiese broke down over terms.
Wiese, who is the biggest investor in both companies, South Africaâ€™s Public Investment Corp. and Steinhoff were unable to reach agreement on the share-exchange ratio that would have been applied to the proposed deal, the retailers said in a joint statement on Monday.
The plan to combine the continentâ€™s biggest grocer with Steinhoffâ€™s African brands including clothing chain Pep had left some investors complaining about its complexity when it was first announced in December, sending shares of both retailers tumbling. The stocks rebounded on news that the talks have ended, Steinhoff gaining as much as 8.3 percent and Shoprite as much as 8.1 percent, the most in six months.
â€œThis is a net gain for Shoprite investors, who were sure they would get the short end of the straw and not get what they think their assets are worth,â€ Michael Treherne, an analyst at Vestact, said by phone from Johannesburg. â€œSteinhoff investors are probably relieved that they are not taking on more risk, by taking on additional assets in Africa.â€
Under the two-pronged proposal brokered by Wiese, Cape Town-based Shoprite would have acquired Steinhoffâ€™s African retail operations in return for new shares, giving the latter a â€œsignificant equity interestâ€ in the enlarged business. That could have ultimately led to Steinhoff, valued at about 22 billion euros ($23.4 billion) after Mondayâ€™s rally, acquiring full control of Shoprite, worth 107.8 billion rand ($8.2 billion).
A tie-up would have been the latest step in an acquisition spree thatâ€™s taken Steinhoff from Europe to the U.K. and the U.S. The collapse of the talks raises questions about the companyâ€™s next move, with one possibility being that it will look at other targets, said Graham Renwick, an analyst at Exane BNP Paribas. In the last year, Steinhoff has bought U.K. discount chain Poundland and U.S. retailer Mattress Firm Holding Corp., while walking away from a bidding contest for the owner of Britainâ€™s Argos chain after the price got too high.
â€œAs they have demonstrated on numerous occasions, Steinhoff is not afraid of walking away from deals where they do not see sufficient value,â€ Renwick said in a note.
Talks between Steinhoff and Shoprite were initiated and facilitated by their two biggest shareholders — Wiese and South African state-owned PIC, which looks after state pensions and is the continentâ€™s biggest money manager. Wiese, South Africaâ€™s fourth-richest person with a net worth of $5.8 billion, owns about 16 percent of Shoprite and 23 percent of Steinhoff.
â€œAlthough the proposed transaction presents exciting opportunities for the companies and their respective management teams, the fact that the relevant parties could not reach an agreement in respect of the share exchange resulted in the negotiations being terminated,â€ the companies said in the statement.
Steinhoff shares traded 6.9 percent higher at 5.13 euros as of 11:19 a.m. in Frankfurt, where the company moved its main listing from Johannesburg in December, 2015. Shoprite rose 8.5 percent to 187.66 rand in Johannesburg, the highest since Dec. 14.
Wiese and Steinhoff couldnâ€™t immediately be reached for further comment. A spokeswoman for Shoprite declined to comment beyond the statement. The supermarket chain publishes half-year earnings on Tuesday.