Steinhoff shows how little style costs

Investors have approved Steinhoff's partial offer to buy 26.2% of the R10.9 billion retail company, which owns brands like Joshua Doore, Hi-Fi Corp and Russells.

Instead of paying cash to get 50.1% of JD Group, Steinhoff is offering those investors 16 shares in KAP International, another company it owns, in exchange for each JD Group share. Before the meeting, Steinhoff owned 32.4% of JD Group.

JD Group's executive chairman, David Sussman, said he had no idea who voted against the deal. "Quite frankly, I don't understand why anyone would vote against it," he said.

"All we were doing at that meeting was saying that if you, as a JD Group shareholder, choose to swap your shares [for shares in KAP], it's a fair offer. No shareholder is under any obligation to accept it," he said.

However, the deal was effectively sealed before the meeting, when Steinhoff obtained commitments from various JD Group shareholders to support its offer, including Investec Asset Management, which owned 15%, and the Public Investment Corporation, which owned 7.8%.

"It's going ahead, for sure it is," said Sussman. "There are certain regulatory issues, but they will be resolved."

Mark Hodgson, analyst at Avior Research, said some investors believed Steinhoff was underpaying to get its hands on JD Group.

"Some shareholders probably would have preferred a cash offer option, rather than an offer of shares in KAP International, which is less well known. Others probably felt Steinhoff should have paid a higher control premium, and it wasn't a particularly attractive offer," he said.

At the moment, 16 KAP shares are worth R48 - less than the R51 at which JD Group is trading.

Hodgson said: "At the current price, you wouldn't expect too many shareholders to give up their JD Group shares, implying Steinhoff's offer was a bit cheeky."

Neither Sussman nor Steinhoff director Piet Ferreira would reveal much of how the new plan will work, such as how many Steinhoff officials will be appointed to the JD Group's board.

Investec's Rob Forsyth said: "We see it as a positive move. JD Group will gain a parent with international retail experience and better sourcing opportunities."

Investec owns shares in both JD Group and Steinhoff.

However, Steinhoff has managed to get control of JD Group without parting with much cash - instead, parlaying its own shares and those it owned in KAP International into a larger stake in the company.

Last May, Steinhoff sold Unitrans Auto and Steinbuild to JD Group for R3.1-billion and was given 22.4% of JD Group in exchange. Steinhoff also owned 88% of KAP and said it would swap 26% of this company for more shares in JD Group.

Ultimately, Steinhoff will have 50.1% of JD Group and 62% of KAP.

Said Sussman: "It's a great deal for Steinhoff, but it's a great deal for JD Group too." Besides getting Steinhoff as a strong shareholder, his company also got shares in "bluechip companies" like Unitrans and Steinbuild.

Source: Business Times