Ratings agency Moody’s has said that Steinhoff’s recent share acquisition in Poundland is ‘credit positive’ and would ‘fit well’ if the South African conglomerate decided to bid for the whole of the British discount retailer.
Steinhoff International, which owns UK brands Harveys and Bensons for Beds, revealed that it acquired 61,212,467 ordinary shares of 1 pence each in Poundland, which represent 22.78% of Poundland’s issued share capital earlier this month on 16 June.
At the same time, Steinhoff also confirmed it was considering a cash offer for Poundland’s entire issued share capital. Moody’s said that if the deal go was to ahead, ‘Steinhoff would deploy its cash surplus in return for EBITDA of around €72.5m, which is roughly a 10% annual return on investment and better than what it could get from current low and negative interest alternatives’.
Steinhoff, which has been heavily involved in other potential acquisitions, which ultimately failed, would have sufficient funding to support the whole purchase of Poundland’s remaining 77.2% - or €556.2m, based on its €3.7bn surplus cash available to finance opportunistic acquisitions, said Moody’s.
Adding, that given Steinhoff’s past approach to acquisitions, Moody’s expect any offer would have a conservative valuation, and that in a bidding war, Steinhoff would walk away from expensive valuations.
Moody’s concluded: “Poundland would fit well into Steinhoff’s existing retail footprint in the UK and would be easily incorporated into its vertically integrated logistics and supply chain. In our view, Poundland’s operations would benefit from synergistic cost savings by leveraging off of Steinhoff’s procurement, warehousing and logistics services, lowering operating costs and increasing overall EBITDA generation.”