Steinhoff raises Poundland offer by 5p a share – enough for Greenmailer?

by Paul Jarvis and Sam Chambers

(Bloomberg) – Steinhoff International Holdings NV raised its agreed bid for U.K. discount chain Poundland Group Plc after an activist investor built a stake that threatened to derail the deal.

The South African suitor increased the offer by 5 pence a share to 227 pence a share, valuing Poundland at 610 million pounds ($793 million), it said in a statement Thursday.

Poundland,_BelfastThe new bid comes after Elliott Capital accumulated a 17.5 percent stake in Poundland last month through derivative contracts. Steinhoff’s original bid required 75 percent of the target company’s shareholders to approve the transaction. Under the revised offer, the bid could proceed with more than 50 percent support from shareholders.

Steinhoff, whose 2,300 stores sell a range of items from furniture to discount apparel, will need to revive growth at Poundland, which just embarked on a turnaround plan under new Chief Executive Officer Kevin O’Byrne.

The 227 pence offer includes Poundland’s 2 pence full-year dividend. The target company was advised by JPMorgan Cazenove and Rothschild, while Investec acted for Steinhoff.

By James Davey and Maiya Keidan

LONDON, Aug 11 (Reuters) – South African retailer Steinhoff raised its offer for Britain’s Poundland to 610.4 million pounds ($790.7 million) on Thursday, seeking to smooth the passage of an agreed deal after an activist investor increased its stake in the discount chain.

U.S. hedge fund Elliott recently increased its holding in Poundland to 17.5 percent, becoming the retailer’s second largest investor after Steinhoff and sparking speculation that it would insist on a higher takeover price.

Steinhoff said its revised offer was final and would not be increased.

“By offering Poundland shareholders an improved cash offer we aim to bring certainty to the transaction, recognising the strength and value of the business and its management team,” Chief Executive Markus Jooste said in a statement.

Elliott declined to comment.

The $28-billion hedge fund, founded by American billionaire Paul Singer, has a track record of buying stakes in companies in play and then getting bidders to increase their offers — a process which has been dubbed “bumpitrage”.

The firm was among investors that helped force Anheuser-Busch InBev to raise its $100-billion-plus bid for rival brewer SABMiller last month.

The fund, which successfully helped lead international investors to seek repayment of Argentinian bonds, also compelled PulteGroup to appoint new directors and built a 6 percent stake in Dragon Oil to push for a higher takeover offer.

Steinhoff, which sells low-priced beds and cupboards in Europe, southern Africa and Asia and owns the Bensons Beds and Harvey’s furniture chains in Britain, is keen to grow its European business at a time when consumers are turning to cheaper chains and its home market is struggling.

It said it is now offering 227 pence in cash for each Poundland share, comprising an offer price of 225 pence and a final dividend of 2 pence.

The revised offer represents an increase of 5 pence per share over the 220 pence announced on July 13, which together with the dividend valued the British firm at 597 million pounds.

RAISED OFFER ANTICIPATED

A revised offer had been widely anticipated after Poundland’s share price moved ahead of the initial offer, closing on Wednesday at 224 pence.

Poundland, which as its name suggests sells every item in its UK stores for a pound, listed at 300 pence in 2014. Its shares have lost 37 percent of their value over the last year, hit by weak sales and the distraction of integrating the 99p Stores chain it bought for 55 million pounds.

On Thursday, its shares were down 0.9 percent at 222 pence at 0933 GMT.

“The 5 pence rise in the Steinhoff bid for Poundland is a pretty modest victory for shareholder activism,” said independent retail analyst Nick Bubb.

Analysts expect the deal to go through given that Steinhoff owns 23.6 percent of Poundland and has the declared support of a further 9.2 percent of the equity.

“We continue to believe this is a good offer for Poundland shareholders and comes at a time when there is more downside risk than upside … We would advise shareholders to accept the offer,” said analysts at brokerage Liberum.

The Poundland deal should be third time lucky for Steinhoff after it failed to secure Britain’s Home Retail, which owns Argos, and was unsuccessful in a bid for Darty in France.

The company, whose largest shareholder is South African billionaire Christo Wiese, has a reputation for buying underperforming companies that can benefit from its wide global network to source goods at lower prices.

Buying Poundland would give Steinhoff more than 900 shops in Britain, Ireland and Spain.

All other terms and conditions of its offer remain unchanged from last month’s deal.