Shoprite confirms buy-out talks

Wiese’s announcement that he was in talks with a private equity consortium follows six months of intense speculation that a deal was afoot.

Until now, Shoprite has kept the market guessing as to what the talks were about. The statement released has given shareholders greater clarity.

Wiese, who is a major shareholder in the group, with a stake of more than 12 percent, would definitely be part of any buyout and delisting, analysts said, although they stopped short of speculating who his private equity partners would be.

African Harvest Fund Managers portfolio manager Mark Ansley said he was not sure South African private equity had the funds to buy the supermarket group outright. Shoprite has a market value of close to R14 billion.

But analysts cautioned that Wiese’s statement that the talks would be finalised “in weeks and not months” should not be interpreted as an indication that the deal would definitely go ahead. Shareholders might block the deal if too little cash was put on the table.

Blue Bay Fund Managers analyst Nic Krige said he thought the Shoprite share price, which closed 0.39 percent higher at R25.60 yesterday, was still cheap compared with bigger rival Pick ‘n Pay Stores. But Wiese said the company had been recently rerated upwards by the market and was now trading “on a par with peers”.

A higher share price might tempt shareholders such as Allan Gray and Sanlam to demand a higher price from private equity buyers.

The Public Investment Corporation (PIC), which manages government employee pension funds, has a stake of more than 10 percent in Shoprite.

PIC chief executive Brian Molefe would only say that the PIC would look closely at any offer and examine what was best for government pension funds.

Asked for his views on the wave of potential private equity deals sweeping the country, which included talks between Edgars Consolidated Stores and a consortium, Molefe said the PIC invested in public and in private equity companies.

Commenting on the impact of the recent strike at the supermarket group, chief executive Whitey Basson said it had cost the company R297 million in lost sales. Nedcor Securities retail analyst Syd Vianello said this would translate into about R50 million being knocked off profit.

Shoprite said in a recent trading update that the South African supermarket operation grew 10.7 percent in the three months to September compared with the same period in the previous year.

It said this was below budget, following the three months of industrial action. Outside South Africa, sales rose as much as 27.9 percent to give an overall 12 percent rise in sales.

The food and drug retailers sector was up 0.1 percent. ‘ IOL.

October 2006
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