JOHANNESBURG – South Africa‘s Steinhoff is likely to make an $800 million swoop for Britain’s Poundland, analysts say, as weaker sterling, a lower share price and downbeat economic outlook make the no-frills retailer’s valuation more enticing.
Under British takeover rules, the retail conglomerate, whose informal approach was snubbed by Poundland’s board on June 24, has until the end of the day on Wednesday to come up with a firm offer or walk away.
Moody’s reckons Steinhoff, which already owns 23% of Poundland, could write up to a 3.7 billion euro ($4.09 billion) cheque for acquisitions.
If Steinhoff goes ahead, it would be the company’s third attempt this year to bulk up its presence in Europe after walking away from high-profile takeover battles for Britain’s Home Retail and France’s Darty.
“I personally think that Steinhoff is going to make a firm offer because in rand terms Poundland is much more attractive than it was few weeks ago,” Momentum Wealth’s head Wayne McCurrie said.
Britain’s vote last month to leave the European Union has sent the pound to its lowest level in three decades and triggered downgrades for the world’s fifth largest economy, which some economists predict could slip into recession later this year.
The pound has dived about 15% against the rand since Steinhoff made its approach for Poundland on June 15.
Steinhoff, which sells beds and cupboards to lower-income shoppers in Europe, southern Africa and Asia, is keen to expand further in Europe, where pressure on consumer income has made Germany’s Aldi the fastest growing supermarket chain.
“Steinhoff made their first move in Poundland when no-one knew Brexit was going to happen, so you could argue that it would clearly be good news for them if the UK economy goes into a recession,” said Peel Hunt analyst Jonathan Pritchard in London.
Steinhoff, which moved its primary listing to Frankfurt to access deeper capital markets, declined to comment beyond the June 24 statement in which it said it was considering its position after Poundland’s board rebuffed its informal approach.
Buying Poundland, which sells every item at single price of a pound, would give Steinhoff more than 900 shops in Britain, Ireland and Spain.
Two London-based analysts who cover Poundland said Steinhoff could justify paying at least 220 pence per share for Poundland, valuing the company’s stock at 591 million pounds ($780 million).
But the board of the British retailer might have a hard time swallowing an offer that is about half what the shares fetched just a year ago.
“If you look at where Poundland has been trading over the last 12 months, you could justify 250 pence but I think Steinhoff will end up paying 220 pence,” one analyst said.
Poundland’s shares were little changed on Tuesday at 194.5 pence. Poundland reported a 13.5% fall in underlying full-year profit on June 16, hurt by subdued trading, adverse currency moves and the distraction of integrating the 99p Stores chain it bought last year.
Steinhoff, which counts South African retail mogul Christo Wiese as a board member and shareholder, has a reputation of buying underperforming companies that can benefit from its wide global network to source goods at lower prices.