Research archive for SNH

Late on Friday afternoon Steinhoff International Holdings announced that it would be going forward with one deal and dropping another. The deal being dropped is the one for Argos from HRG where Steinhoff were looking to spend around 1.4 billion Pounds. Remember that Sainsbury had already made an offer to HRG, the market was pricing in a pricing war, so Steinhoff probably would have had to spend more to complete the deal. This deal with HRG would have been around 10% of the company's market cap and the Darty deal around another 5%, it looks like Steinhoff decided to pick one deal and go for the company where they have better synergies.

Steinhoff (International Holdings) have been in the news lately. For a lot of reasons. Yesterday the stock touched an all time high, in both the short listed history in Frankfurt, which has been since December last year, and here in Jozi. At one stage the stock was trading at 89 Rand a share, the stock was in the third week of January below 70 Rand a share. The company reported results on Monday for the first six months of their financial year.

We saw the Steinhoff news on Friday, there is confirmation this morning that the company is offering the Home Retail Group (HRG) shareholder a total offer of 175 pence a share. The Home Retail Group website says on the Investor Relations page: "Despite challenges in our markets, we've maintained our multi-channel leadership position and continue to be the UK's leading home and general merchandise retailer." I see. It is a sizeable business, in terms of its depth across the length and breadth of the United Kingdom, over 1000 stores employing 47 thousand folks and selling 90 thousand plus products.

Steinhoff stock was slammed Friday, the company put out a SENS early on what must have been one of the best kept secrets in a while. The stock was down seven and one quarter of a percent. Here goes, let me do a copy and paste: "In connection with tax investigations, the Westerstede offices of Steinhoff Europe Group Services GmbH (SEGS), a German subsidiary of SIHL, have been searched on November 26, 2015. The authorities are reviewing the balance sheet treatment of certain transactions involving transfers of participations and intangible assets among SEGS, additional subsidiaries and third parties pursuant to 331 HGB. The investigation focuses on adherence to an arms' length valuation and proper accounting pursuant to German GAAP. SEGS is fully committed to support the authorities, and has begun to take immediate steps, in clarifying and resolving these matters."

There was of course other news, there was a name and version change for Steinhoff, it is effectively an inward listing now. What does that mean? Here is your refresher, we wrote about this back when the company released their FY numbers, here goes: " ... the company announced that they had got the necessary votes to proceed with the offshore listing in Frankfurt. Logistically speaking, what happens next is that a business called Genesis N.V. will acquire all the shares of Steinhoff, in exchange for each Steinhoff listed share on the Frankfurt stock exchange, there will no doubt be a version change. You will basically be an investor, owning a global depositary receipt of a business listed in Frankfurt and domiciled in the Netherlands. Got it? Easy, not so?"

Steinhoff reported numbers for their first full year that includes all the huge transactions that they have managed to close in the same time that Alibaba have been listed, not all full years of course, some of the transactions are recent. Marcus Jooste and his team are highly regarded, they now have one of the most iconic South African businessman as a large shareholder. You will recall in the message that we wrote last year in November: Steinhoff buying Pepcor, that Dr. Christo Wiese would own around 20 percent of the business. He has been potentially diluted a bit with the issue of convertible bonds, we wrote about that at the end of July -> Steinhoff convertible bonds.

What is up with Steinhoff, what was that yesterday? The company announced a convertible bond offering. When you buy debt from a business and convert it to equity, that is what a convertible bond is. It does two things, one, it dilutes you the shareholder, it also gives you as the shareholder less obligations to the bond holders. In effect, the party holding the convertible bond will be paid a regular coupon payments (interest), in this case with Steinhoff it is 1.25 percent.

Yesterday Steinhoff released a Strategic review update, which gives a nice view of their business and the timing of their Germany listing. The plan is to push to grow market share in Germany, push for supply chain efficiencies and cost savings and the listing should take place in the final quarter of this year.

WHOA! This is big. No, this is huge. Two listed companies and another "Titan" of South African business involved in both legs have announced this morning that Steinhoff will be acquiring Brait's 37.06 percent interest in Pepkor for 15 billion Rand in cash (now you know why they raised the money - 18.2 billion Rand in August) and the issuance of 200 million Steinhoff shares at 57 Rand a piece, total consideration of 26.4 billion Rand. Not so long ago Anchor Capital valued the stake at 28.066 billion Rand, Brait seemingly sold at a discount. It does not stop there for Steinhoff, they acquire Titan Premier Investments Proprietary Limited's shares in Pepkor, which represents 52.47 percent of the company, which will be bought for 609.1 billion ordinary Steinhoff shares. And then Steinhoff will buy 2.81 percent from Pepkor management to own 92.34 percent of Pepkor. The balance will be held by Pepkor management (they obviously wanted to cash in some chips). This values Pepkor (enterprise value) at 73.382 billion Rand.

Yesterday we received results from Steinhoff for the year ended 30 June 2014. As always is it is complicated. The financial review which covers all the moving parts is just as long as the operational review which focuses on the underlying businesses. Credit though must be given, once you read through the report it all makes sense and they simplify everything nicely.

Steinhoff have not had the best time, their share price that is, since the trading update. I guess there would also be a little negative sentiment as the economic conditions in Europe has reversed the course somewhat, it is all relative. Deflation is not a problem experienced by developing economies, perhaps Venezuela and Zimbabwe are two exceptions, the richer you are and if demand is weak, deflation is more likely. Forget the wonk economic policies of those two places, I had the most magnificent email from a client in Venezuela, I am awaiting a thumbs up from him on whether I can use some of the content publicly.

Steinhoff released the results of the rights issue in which they raised a whopping 18.2 billion Rand. To give you an idea of how much 18 billion Rand is, that is roughly the market capitalisation of Grindrod. Absolutely astounding that the company could raise that much money, there was clearly the appetite there from the local market at 16.58862 rights per 100 shares, at 52 Rand a share. There was enough of a discount, the thought of being diluted in what looks like a good investment was too much for the local investment community to pass over.

What? Steinhoff with another announcement, post the desire to become primarily a European company by listing, if not revenue, because they are there already. What is going to happen is simple (or not so simple), if you are a local shareholder you are going to be able to participate in a rights issue whereby the company will issue 16.58862 new ordinary shares for every 100 existing ordinary shares at a price of 52 Rand a share. Why 52 Rand a share?

What is going on with Steinhoff? A late announcement on Monday and the headline read Steinhoff announces secondary offering of shares in KAP Industrial Holdings Limited. Steinhoff offering institutions a discount in a book-build for 400 million of their KAP shares, thereby reducing their stake in the company to 45 percent from 61.8 percent. If you recall, Steinhoff quite simply have taken their South African assets and injected them separately into KAP and JD Group.

Yesterday you would have remembered that piece on Steinhoff, this is what I wrote: ...we only have twenty companies with a market capitalisation in excess of 100 billion Rand, Steinhoff the last on that list in twentieth place, with a market cap of 113 billion Rand. Likely to get bigger, right? More Steinhoff shares going to be issued for acquiring JD Group. Just last evening Steinhoff announced that it had received more acceptances for their offer to JD Group shareholders, and once the swap had been settled, they would own 83.9 percent of the furniture business. Guess who is the uncle now? Sorry, I am not an expert on company law, but read a guide from Bowman Gilfillan (so I must be an expert, right?) which suggests the following: "the compulsory acquisition of minority shareholdings when an offerer acquires 90% of the shares in the target." Watch closely.