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Selling the family jewels: Steinhoff gauges interest in European star-performer Pepco

JOHANNESBURG — When you’re looking to flog off one of your better-performing business units to try to stay afloat, you know you’ve got serious problems. Not a day goes by these days without some disastrous story relating to Steinhoff breaking in the press. How Steinhoff is still in existence is a miracle, but things are getting really desperate for the retailer. And the possible sale of one of its better performing units, eastern European retailer Pepco, is a sign of just how bad things have become. Pepco has been a star-performer for Steinhoff, producing solid growth. But for it to continue on its trajectory, it’s possibly a blessing that it may be parting ways with its parent Steinhoff in the near future. – Gareth van Zyl

By Loni Prinsloo, Janice Kew and Sarah Syed

(Bloomberg) – Steinhoff International Holdings NV is gauging takeover interest in businesses including clothing chain Pepco as the scandal-hit retailer prepares for the next phase of a recovery plan, according to two people familiar with the matter.

The South African company has informally sounded out potential buyers for Pepco including private equity firms, said the people, who asked not to be identified as the plans aren’t public. The profitable chain, with more than 1,300 stores in Eastern European countries such as Poland and Romania, has emerged as one of the jewels in Steinhoff’s crown as the retailer battles to survive an accounting scandal.

PEPCO screenshot
PEPCO is one of the largest non-food retail chains in Central and Eastern Europe, with stores in Poland, the Czech Republic, Romania, Hungary, Slovakia and Croatia.

A formal auction of Pepco could come if or when Steinhoff agrees to a 9.4 billion-euro ($11 billion) debt-restructuring deal with bondholders and other lenders, seen by the company as a crucial step toward avoiding insolvency. The retailer is negotiating a two-year payment delay, people familiar with the matter said last week, and the company said Friday it has enough backing to extend the talks through July 20.

Steinhoff declined to comment.

Steinhoff shares have lost more than 95 percent of their value since the company reported accounting irregularities in December. While the retailer is only mid-way through a year-long investigation into its finances, the stock bounced this week following the release of unaudited half-year earnings and a partial restatement of discredited figures late Friday. The shares gained 38 percent Tuesday, and rose a further 3 percent to 0.12 euros as of 9:08 a.m. in Frankfurt Wednesday.

While private-equity firms await a formal sale process, Steinhoff Africa Retail Ltd., which was spun off by Steinhoff before the scandal erupted, has made an expression of interest for both Pepco and UK discounter Poundland, the people said. The approach was rejected, though STAR, as the retailer is known, remains interested. Steinhoff owns about 71 percent of STAR, whose finances have been broadly untainted by the scandal.

A spokeswoman for STAR didn’t respond to requests for comment.

“The future shape of the group should start to become clearer, although there is likely to be tension because the most saleable parts of the group are those that would be most attractive as part of a future Steinhoff,” Charles Allen, a retail analyst at Bloomberg Intelligence, said in a note.

Expansion drive

Pepco’s revenue jumped 40 percent in the half year through March, according to the unaudited financials published last week. The company is also on an expansion drive, and is targeting 1,500 outlets by the end of September.

Poundland, which has 871 outlets selling a range of household items for £1 a piece, bucked a tough UK trading environment to post half-year like-for-like sales growth of 2.4 percent.

Steinhoff bought Pepkor Holdings Ltd., which included what was to become Pepco, and Poundland as part of an acquisition spree starting 2015. Pepco and Poundland are now grouped together by Steinhoff as Pepkor Europe, which reported earnings before interest, taxes, depreciation and amortization growth of 28 percent in the six months through March.

Most of Pepkor, the pan-African clothing retailer Pep, is now part of STAR, which is in the process of changing its name to Pepkor to distance itself from its parent.

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