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In a major blow to the European ambitions of the JD Group and Steinhoff, the two parties yesterday called off their merger.

May 30, 2007

By Tom Robbins

Cape Town – In a major blow to the European ambitions of the JD Group and Steinhoff, the two parties yesterday called off their merger.

Steinhoff, with the support of JD Group management, said it had failed to gain required shareholder support for the R15 billion acquisition of South Africa’s biggest furniture retailer.

The deal would have coupled the JD Group’s retail experience and its Polish chain Abra with Steinhoff’s major furniture manufacturing business in central Europe.

But just as the calling off of the deal was a blow to the two parties, it was a victory for those shareholders opposed to the sale.

The deal, which required 75 percent support from JD Group shareholders, ran into trouble when investors Old Mutual Investment Group and Stanlib Asset Management said they would vote against it.

But after that opposition, some analysts said the fact that Steinhoff had successfully announced the sale of its local furniture making business indicated that Steinhoff was confident the deal would go ahead.

They argued that Steinhoff was ridding itself of the furniture manufacturing business in order to ease competition authority approval for the deal.

Without the disposal, the deal would have married the country’s largest furniture retailer with the biggest local furniture manufacturer.

But Old Mutual retail analyst Jeanine van Zyl said yesterday that she did not think Steinhoff’s decision to call off the deal would stop the sale of its furniture making business.

Van Zyl believed Steinhoff wanted to get rid of the business anyway, because of its low growth prospects.

She said JD Group rival Lewis had benefited from increasing imports of furniture due to the variety of styles and cheaper prices offered.

Van Zyl said it was probable that both the JD Group and Ellerine would start doing the same.

The JD Group and Ellerine are both major clients of Steinhoff’s local furniture manufacturing business.

Steinhoff could not be reached to comment on whether it would now attempt to pull out of the deal that result in it selling its furniture making business to a private equity consortium led by Absa Capital.

Van Zyl added that she did not expect Steinhoff to increase its offer price for the JD Group, following its failure to win over shareholder support.

She said Old Mutual had opposed the deal as it believed the long-term prospects of the retailer were good.

Van Zyl said the South African consumer-driven boom was a long-term good news story and that the JD Group was “well placed to benefit from that”.

Had the deal gone through, it would have seen the JD Group shareholders being offered 3.6 Steinhoff shares for every JD Group share in issue.

The takeover had been supported by Public Investment Corporation and Rand Merchant Bank (RMB).

RMB, with a bigger investment in Steinhoff than in the JD Group, had seen greater value selling its stake in the retailer to Steinhoff.