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Bain bid for Edcon should succeed

We’ll take the money but the price is not that generous say fund managers

Bain Capital’s R25bn offer for Edcon is likely to be accepted by all shareholders said fund managers after the offer was announced earlier today.

In the biggest private-equity deal in SA so far, Bain Capital will pay R46 cash for each share, in its bid to acquire the fashion retailer’s entire share capital. If the offer succeeds, Edcon will be delisted from the JSE.

The transaction will be funded by a combination of long-term debt and equity and Barclays Plc and Absa Capital are providing the debt financing.

The group explained that the offer price is at a premium of 51,3% over the closing share price of R30,40 on October 16 2006. This is the day before Edcon issued a cautionary announcement regarding discussions with private-equity parties.
Anthony Sedgewick from Nedbank and African Harvest Fund Managers’ Mark Ansley said they would be inclined to accept the offer.

If Bain is prepared to pay this price, then it must expect operations to expand sufficiently enough to justify the investment, explained Sedgwick.

“It is a wonderful vote of confidence in the country,” he added.

Some SA analysts noted that capital for private-equity houses in particular, is too freely available and cost of borrowing extremely low. That was why private-equity players were prepared to pay large premiums.

“There is too much capital chasing too few opportunities”, said Sedgwick. But he added that the Edcon and Shoprite offers might imply that SA investors have been too conservative.

Edcon made much in its release of the 51% premium to the pre-deal price but Ansley was not blown away by its generosity. He pointed out that the retail index closed at 24 762 on that date and has risen just over 33% since then.

Tessa Christelis, Edcon’s executive manager of investor relations said a number of shareholders had said it was a great price but took care not to over enthuse.

She added that there was no official date for payment to go through but following all regulatory approval, the group was hoping it would be done by the end of May.

CEO Steve Ross will remain in position. Christelis explained that he would sell his shares and then reinvest in the group at the higher price.

The existing Edcon management team will also be offered the opportunity to make personal investments in the company.

Ross said the transition from a public to private company would not affect employees as Edcon forges ahead with “business as usual”.

Bain Capital is one of the largest private-equity investors in the world, investing in leading retailers such as Staples Office Products, Toys “R” Us, Burger King and Domino’s Pizza.

Edcon’s share price jumped nearly 13% just after the details of the deal were announced.

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