In the four weeks since the announcement of a proposed tie-up between Steinhoff and Shoprite, the share price movements suggest investors believe the deal will be priced in Steinhoff’s favour, but only just.
Within hours of the announcement on December 14, the Shoprite share price slumped from a high of R193 to R174 and since then has trended weaker to about R169. Steinhoff’s share also took a hit on the announcement, dropping from R76 to R68 within hours and still trades near that lower level. Shoprite’s 12.5% drop compares with Steinhoff’s 10%.
Shoprite’s weakness came at the end of a year in which the share enjoyed a strong run. Steinhoff has been trading weaker since August 2016.
Neil Brown, co-head of Electus Fund Managers, summed up a commonly held view among investors.
"If I could align my exposure precisely to that of [Christo] Wiese I would, but I can’t and as I’m not persuaded either way about the operational advantages of the deal I sold out of Steinhoff," said Brown.
He would buy back into Steinhoff if it fell to R60.
Sasfin’s Alec Abraham said that even if Steinhoff got the better end of the share exchange, a tie-up had advantages for Shoprite as it would give it critical mass in Africa.
Analysts believe the deal will favour Steinhoff on the assumption it is the vehicle that Wiese has selected to consolidate his global retail interests. Wiese is the chairman and largest shareholder of both Shoprite and Steinhoff. He has an 18% stake in Steinhoff, which is worth considerably more than his 16% holding in ordinary Shoprite shares. Wiese controls a further 35% of Shoprite’s voting shares through unlisted Thibault Square Financial Services.
The announcement by the two retailers in December referred to discussions about a potential merger of their African retail interests to create an African "retail champion". The proposal, for which no details have been provided, would see Shoprite acquiring Steinhoff’s African retail operations in exchange for Shoprite shares.
The Public Investment Corporation (PIC), which has undertaken to support the deal, holds 11.05% of Shoprite and 8.48% of Steinhoff. Another factor influencing investors’ hesitance is whether Wiese and the PIC will be allowed to vote their shares.
"Only when the structure of the deal is known will it be clear whether or not Wiese and the PIC will be allowed to vote," said Brown.
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