Gloves off as Shoprite readies for Wal-Mart war

"Whitey Basson [Shoprite's CE] has been very pugnacious up until now - saying they're really going to attack them with everything they've got. I think this [share and bond placing] is part of that," Absa Investment analyst Chris Gilmour told I-Net Bridge/BusinessLIVE.

The company will issue 27.1 million new shares, equal to about 5% of its current shares, at a price of R127.50 for proceeds of close to R3.5 billion.

Shoprite will also issue convertible bonds with a nominal value of R4.5 billion.

"The new capital and loan funding will strengthen our balance sheet and will be used to accelerate our expansion plans in SA and the rest of Africa in terms of new stores and infrastructure," Basson said.

Shoprite plans to add twelve stores in countries like Nigeria and the Democratic Republic of Congo by the end of June.

With Africa's consumer spending forecast to hit US$1.4-trillion in 2020, retail players are hoping to cash in on a burgeoning middle class, whose disposable income is rising rapidly.

Grocer Pick n Pay (PIK) has just over 40 stores outside of SA, and plans to open as many as 100 stores in the next four years, as part of their foray into Africa, while upmarket retailer Woolworths (WHL) hopes to grow its footprint to 104 stores by June 2014.

Northerly expansion does however present challenges, even for a stalwart like Shoprite, who has the largest African presence with 230 stores in 15 countries outside of SA.

"They could make a big push, but having said that there are only a few sites available - that is a problem we have in SA too. Sometimes it doesn't matter how much money you've got, if you can't get the site, you can't get the site and that's it," Gilmour said.

Though Shoprite was not actively pursuing acquisitions at present Basson noted that the new capital would enable it to "selectively pursue" opportunities that presented themselves in the future.

One such target could be building materials retailer Cashbuild (CSB).

"It's one that has been mooted for a while as a possible target for Massmart. It would make an awful lot of sense for Shoprite because it's in a similar type of consumer space - lower end of the market, it would fit in beautifully.

"It's something Massmart has got already with its Builders Warehouse and Spar has with Build It. It's something that's missing in Shoprite's case," Gilmour said.

Cashbuild has a market capitalisation of R3.1 billion.

Shoprite is also likely to put the cash to use by investing in price through the roll out of long lasting promotions, a move which has proved successful for Wal-Mart, who through its majority stake in local retailer Massmart, launched three successful 10-week price promotions.

The retail monolith is known for its super low prices and wide array of merchandise, and goes by the "Everyday Low Prices" mantra - a strategy engrained in the group's ethos from its very beginning in 1962.