Last month, UK chain Tesco was rumoured to be interested, while last week rumours abounded that Pick n Pay had surfaced on the radar of one of Australia's biggest retailers, Woolworths.
Retailers in developed markets have shown anaemic growth and little room for expansion as their economies struggle to emerge from recession. Hence the need to look further afield for expansion.
If there was something to be bought in SA, it would have to be Pick n Pay, SA's second-largest supermarket chain which has been losing market share to rivals and appears to be limping compared with the competition.
The entry of Wal-Mart, the world's largest retailer, with its huge war chest, has only served to complicate matters for the family-controlled company.
Kate Calvert, a London-based retail analyst at Seymour Pierce, says Tesco has not signalled interest in SA or Africa as a whole. "Their shareholders would want them to sort out their underperforming UK business before entering new countries. In addition, they still have a fledgling loss-making US business and need to build scale both there and in China too.
"The French hypermarket players - such as Carrefour, Casino and Auchan - are often cited as possibly being interested in Africa but Carrefour have their own problems at home," Calvert says.
Auchan and Casino have often teamed up in markets abroad.
Clive Black, an analyst at Shore Capital, says retrenchment and focus are the order of the day in Europe. "I would be surprised to see Tesco make a near-term acquisition in SA. While one never says never to potential corporate activity, Tesco has a lot on its plate with its core business in the UK losing market share. The priority for management is steadying this ship.
"Additionally, we sense Tesco is keen to deleverage, (which) works against acquisition."
If Tesco were to expand beyond its present territories, Black says Indonesia and Vietnam are more likely choices, building on its strong presence in Malaysia and Thailand.
A deal with Woolworths Australia would be ironic as Woolworths was one of the retailers that appealed to the Australian competition regulator to block the sale of Pick n Pay's Australian outfit, Franklins, to Metcash. The deal was finally approved late last year, freeing up some cash for Pick n Pay.
Woolworths Australia certainly has the muscle to acquire Pick n Pay and Daniel Broeren, an analyst at RBS in Australia, says the company has discussed offshore acquisitions in the past. "The company said that it would consider investing offshore but would do so in a 'careful and considered manner'.
"The board is very aware that shareholders are concerned about a large investment offshore so they would take care in how something like a Pick n Pay acquisition would be communicated."
The deal would be about 6% of Woolworths' earnings before interest, tax, depreciation and amortisation, so it is not a company-changing deal, he says.
According to Tony Wilson of Evans & Partners in Australia, an offshore acquisition would be some time off, "unless it was a very attractive opportunity".
An alternative is cash-flush Woolworths SA, Bach & Partners managing partner Mike Bach says. Bach works closely with retailers and fast-moving consumer goods companies around the world, including Wal-Mart and Target Stores in the US, on business strategy and execution.
"Woolworths SA has done a great job securing the (living standards measure) 8-10 shopper, among other elements, with their store site selection, fresh positioning and ability to keep a treasurehunt shopping experience. In effect, it has successfully bettered the major advantages Pick n Pay has held over the years.
"This advantage cannot easily be replicated as Woolworths goes into building a larger format store aimed at trolley shopping. There would be greater synergy in acquiring or aligning with Pick n Pay, not to mention blunting competitive efforts, which are sure to occur when the (bigger) Woolies stores are opened."
However, Bach says the more likely scenario would be a private equity takeover. "They would be more flexible with the management of the family interests than a large retailer might be."
Pick n Pay spokeswoman Tamra Veley says the company prefers not to comment on speculation. "What we can say is we frequently engage with a wide variety of international retailers for strategic reasons, and equally frequently exchange information.... This will continue."
Source: Business Day
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