JSE-listed clothing and homeware retail giant Mr Price Group on Friday received the Competition Tribunal’s approval of its acquisition of the 170-store Power Fashion chain, which saw its share price close at a 52-week high.
The stock hit almost R195.50 a share before closing at R194.20 on Friday, more than 5% up on the day and around 64% up on a year ago when South Africa went into its first Covid-19 lockdown.
Mr Price getting the green light on the deal comes with conditions that it promotes local procurement.
First announced in November last year, the acquisition will see the Durban-based value retailer increase its share of the lower end of the clothing retail market.
Mr Price pointed out at the time that the size of the transaction was approximately 4% of the group’s market capitalisation, which was around R39.7 billion back then.
This means the deal is valued at around R1.6 billion.
The acquisition of Power Fashion, which targets the lower end of the market and is also Durban headquartered, will see Mr Price take on the likes of Pep (owned by JSE-listed Pepkor) and independent chains such as JAM Clothing and Style (owned by Retailability – the group that took over Edgars).
Power Fashion is the trading name of Otto Brothers Distributors Pty Ltd, which is led by Noel Otto and was founded by the Otto family some 65 years ago in Swaziland as a general dealer that also sold clothing and footwear.
Today, Power Fashion has a national footprint in South Africa and several neighbouring countries. The chain’s stores are typically located in ‘high streets’ in CBDs and in township malls, rather than in regional and super-regional shopping centres.
The tribunal said in a statement that it “has conditionally approved the merger whereby Mr Price Group Limited [Mr Price] will acquire the retail apparel business operated by Otto Brothers Distributors Pty Ltd [Otto Brothers] and its subsidiaries, trading as Power Fashion”.
“The transaction is unlikely to substantially prevent or lessen competition in any market in South Africa,” the tribunal noted.
“However, conditions have been imposed on the merger to promote local procurement within the Mr Price Group post-merger. This follows concerns raised by the Minister of the Department of Trade, Industry and Competition (DTIC) in relation to local procurement,” it added.
Conditions of the merger include that the merged entity must ensure that:
- Power Fashion maintains or improves its current level of locally-procured goods and services; and
- Power Fashion participates in the DTIC’s Retail, Clothing, Textile, Footwear and Leather Masterplan initiative along with the rest of the Mr Price Group.
The masterplan seeks to increase the share of local retail sales of locally-manufactured clothing and footwear to 65% by 2030, among other things.
Meanwhile, Mr Price is awaiting approvals from the competition authorities for its latest acquisition, the Yuppiechef business.
Announced earlier this month, the deal will see Mr Price also target upper market kitchen- and homeware retail in South Africa.
The group already has a highly successful Mr P Home chain, but the Yuppiechef move seems to be aimed at growing its online homeware sales and competing with TFG’s @home chain and even the likes of Takealot.com, Massmart and independent retailer Hirsch’s in the home appliances and décor space.
The Power Fashion and Yuppiechef deals, totalling more than R2 billion, have clearly also contributed to the surge in Mr Price’s share price in recent months, besides retailers getting back to normal trade post the initial Covid-19 ‘hard lockdowns’ last year.
When Mr Price announced the acquisition of Power Fashion in late November, its market cap was around R39.7 billion.
After Friday’s 5.11% increase, Mr Price’s market cap sits at R49.7 billion. This is R10 billion up in just four months.