Poundland shares leap after Steinhoff buyout hint

Shares in Poundland are surging today as rumours of a possible takeover hit the market.

Retail conglomerate Steinhoff, which launched an abortive offer for Argos earlier this year and also failed in its attempt to buy French electrical brand Darty, said late on Tuesday that it might consider making a takeover bid for the cut-price retailer.

The Daily Telegraph reports the South African giant went on to extend its stake in Poundland to 23 per cent after buying the private equity firm Warburg Pincus's remaining 15 per cent stake. Steinhoff said yesterday it now plans to acquire the rest of Poundland with cash.

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Investors have reacted well to the news. Stocks have risen from around 157p at the open on the day the comments were made to 208.5p now – and they are rising today in a falling market, up more than four per cent at around 2pm in London.

The speculation has helped backers shrug off Poundland's ostensibly poor set of results for the past financial year, which showed like-for-like sales and profits falling as it struggled to integrate its smaller rival 99p Stores.

Annual pre-tax profits at the 900-strong chain plummeted 83.7 per cent from £36m to £5.9m, reports the [2] BBC.

Excluding the cost of the merger, the drop was 13.5 per cent to £37.8m, the Telegraph adds. Like-for-like sales shrank by 3.9 per cent, but total sales grew by 18.7 per cent to £1.3bn on the back of the acquisitive expansion.

Boss Jim McCarthy said Poundland had been through a "challenging but transformational year".

The purchase of 99p Stores "gives us five years of growth in one stroke as our store estate grows by 40 per cent", he continued, adding this even made the protracted competition process to get the transaction completed worth it.

The regulator's investigation took nine months and by the end, many of 99p Stores's shelves "were bare", says the Telegraph. McCarthy said the company faced a "Guinness Book of Records-level" acceleration of a plan to convert the new stores.

The results also confirm that McCarthy himself will stand down in two weeks, after a decade at the helm. He will be succeeded by Kevin O'Byrne.