Investors had been eagerly awaiting details of the proposed Shoprite–Steinhoff African tie up. The initial proposition was to create Retail Africa, whereby Steinhoff would have sold its African assets to Shoprite in exchange for shares. The deal was said to have been led by Christo Wiese, who owns 23% of Steinhoff and 16% of Shoprite via his holding company, Titan, as well as the Public Investment Corporation (PIC). The two companies are the biggest shareholders in both companies.
However, details of deal were rather thin and there was much uncertainty as to which shareholders would benefit from the proposed deal. The uncertainty caused both share prices to come under pressure, both having fallen after the initial SENS announcement on 14/12/2016.
However, on Monday morning the 20th of February 2017, the deal was subsequently cancelled when the companies issued a statement that they were ’withdrawing the cautionary announcement’. The minority shareholders were not convinced on the merits of the deal, and an exchange ratio could not be agreed to between the negotiating parties.
“Shareholders of the companies are hereby informed that the companies have decided to terminate their negotiations related to the proposed transaction as the PIC, Titan and Steinhoff could not reach agreement on the exchange ratio that would apply to the share exchange” was cited in the SENS announcement.
Both share prices surged on the back of the news. Respectively, Steinhoff and Shoprite shares increased intraday by as much as 7.26% and 8.55% before closing at 7011 cents and 18800 cents. Typically, in a proposed merger, the share price of the company being acquired increases while that of the acquiring company, decreases (depending on cost, synergies, strategy, etc.) but as there was so much uncertainty involved in the deal, initially both shares decreased after the announcement and both increased after the deal was cancelled.
We hold a favourable view of both companies and would suggest adding them to any portfolio. While the deal may have presented some exciting opportunities, current shareholders can breathe a sigh of relief as the cloud of uncertainty is removed and the shares get a much needed boost.
Stockbroker and Portfolio Manager
Cheyne has spent the last 10 years working in London, holding numerous positions within Equity and Equity Derivatives at various Investment Banks. His main focus has been on South African and Emerging Markets and also gained good exposure to global equity markets and products. He completed both his BCOMM degree in Economics and his BCOMM. Honours in Financial Analysis and Portfolio Management at the University of Cape Town. After completing each of the rigorous exams, Cheyne became a CFA Charterholder in 2014.