South African retail consolidator Steinhoff has given ground to an activist investor in its pursuit of discount retailer Poundland – but not an awful lot.
The firm yesterday upped its buyout offer for the discount store by 5p per share, effectively adding £13m to the previously agreed price tag to a little more than £610m.
The move follows the rapid emergence of activist hedge fund Elliott Advisors as a blocking minority shareholder. The US firm has amassed a 17.5 per cent stake in Poundland since Steinhoff first struck its £597m buyout.
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With the takeover needing 75 per cent shareholder approval and Steinhoff unable to use its near 24 per cent stake to influence the outcome, Elliott would probably be able to derail the deal on its own.
While it made no public comment, the investor is well known for engaging in "bumpitrage" - amassing a hefty shareholding to agitate for a higher price on an agreed offer and therefore a quick profit.
So in one sense, Poundland is another success for the fund.
However, says retail analyst Nick, it is a "pretty modest victory".
Elliott stands to make only a small gain, given it would have bought much of its shareholder around the 220p to 225p range at which Poundland has traded since the takeover bid was first disclosed. The new offer is effectively 227p.
Steinhoff has also said this is its final offer, which the Daily Telegraph says means it is now barred under takeover rules from upping the price again.
Poundland shares are trading at a 43 per cent premium to its closing price before the offer, but still well below its 300p-per-share peak of two years ago. The stock fell 2.3p yesterday, indicating investors are underwhelmed by the offer increase.
Poundland buyout set for 'bumpitrage' battle
12 August
Poundland's near-£600m takeover by South African retail consolidator Steinhoff could be hit by an activist investor aiming to "bumpitrage" the price tag higher.
US hedge fund Elliott Management, which made headlines when it cost Alliance Trust chief Katherine Garrett-Cox her job last year, has amassed a 17.6 per cent stake in the discount retailer.
After gaining the approval of Poundland's board, Steinhoff's £597m offer now needs to be accepted by three-quarters of shareholders, excluding the prospective buyer's own 23.6 per cent interest. Elliott's stake is enough to "derail the bid should the US fund choose", says the Financial Times.
Its track record would suggest the fund is seeking a profit from what the FT terms "bumpitrage" – when activist funds buy in after a deal is agreed in principle to agitate for a higher price.
A similar strategy has seen the fund in the last month extract an extra £1 per share, or £9bn more, from Budweiser brewer AB InBev for UK-based rival SABMiller. Last year, it earned a bolstered bid from private equity group Lone Star for property developer Quintain.
These successes now give analysts the impression Steinhoff could be forced to raise its stakes to secure Poundland.
Elliott has given no official word on its plans, says the Daily Telegraph, but City sources told the paper the fund is known to believe the 220p-per share, plus a 2p dividend, undervalues the business at a time when its profits have been hit by the tricky integration of rival 99p Stores.
Proponents of bumpitraging say private equity deals in Europe are often agreed by executive behind closed doors and "short change" investors. Elliott and others proclaim they are a "force for good", says the FT.
Things get messy if the buyer doesn’t play ball, however, as a deal falling through is rarely in investor interests – or even worse, a co-ownership compromise can give rise to costly boardroom battles.
"We are a pain for them," one bumpitrageur "cheerily" told the FT. "We can still call meetings and block payouts."
Poundland snapped up be Steinhoff in £597m deal
13 July
South African retail giant Steinhoff has finally completed its buyout of Poundland, in a deal valuing the discount retailer at close to £600m.
The companies have agreed on a price of 220p plus a 2p dividend per share, equating to £597m for the entire share capital of the business.
The sale price represents a more than ten per cent premium to the below-200p share price before the deal was announced, but a big discount from the 450p per share price as recently as last February, the BBC notes.
Steinhoff had been building a stake in the business and had amassed a shareholding of 23.6 per cent. According to the Financial Times, the remaining shares has cost it around £450m.
Last month, Poundland reported pre-tax profits plummeted 84 per cent from £36m to £5.9m last year.
This was in part due to the £55m purchase of its loss-making rival 99p Stores last year, boosting its total number of outlets to more than 900, but resulting in a costly and complex competition probe.
The regulator's investigation took nine months and by the end, many of 99p Stores's shelves "were bare", says the Daily Telegraph.
Former Poundland boss Jim McCarthy said at the time that Poundland had been through a "challenging but transformational year" and that the buyout "gives us five years of growth in one stroke".
