Analysis Essay on Steinhoff and Pepkor Companies

Published: 2021-07-01 04:36:07
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Sewanee University of the South
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Case study
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Steinhoff Company made an agreement to buy Africas Pepkor Company for an equivalent amount of $5.7 billion. Steinhoff will be able to procure a 92.3 % of Pepkor which is the South Africas biggest retailer. It has got a worldwide discount performer in the world top five that shares the prospect issued by both Companies. The purchase of the shares will help Steinhoff to acquire the biggest non-food dealer in Australia and Polands Best and Lees. The operation conducted by Steinhoff allows 2011 acquisition to go through adding the supplies in Italy, France and Spain. The board of directors of Steinhoff was very much pleased to announce their agreement which was concluded between Steinhoff, Titan Premier Investment Proprietary Limited, Brait Mauritius Limited and Pepkor management concerning Steinhoffs nominated subsidiary to acquire effective 92.34 % interest in the equity share capital of Pepkor (Brait.co.za, 2017).  Regarding acquisition, Steinhoff planned to acquire Titans effective equity interest in Pepkor of 52.47%, from Titan 37.06% from Brait and 2.81% from Pepkor management. The shareholder holdings issued their support as a result of the acquisition intending to vote for all the resolutions that were required for the implementation.

Competitor and Stakeholder Analysis of the Steinhoff and Pepkor Companies

The competitor and stakeholder analysis of Steinhoff relies on its business model which is based on the approach of developing the products at very minimal cost and allocating to the consumer's base and the retail footprint which is very expensive. The retail operations are usually positioned towards the price-conscious consumer's segment which allows them to provide with an affordable product that can go through a vertically integrated supply chain. Steinhoff adheres to loyalty, respect, commitment and trust. Different structures created aim to build and provide an environment that encourages the business partners, customers and employees to contribute to accountable occupational performance which would allow benefits to be obtained that are sustainable.

It is established on the strategy that makes sure that the primary approaches that contribute in preserving the groups focus to support its policy and achieve sustainable result has been successful and has enabled the business to grow and develop under impulsive and indefinite political and economic conditions in the whole world. The approach is what brings the value of the stakeholder making the central of the group to utilize its sustainability effort.

The groups diversity and the footprint of its geographical issues are what determines the aspects that are to be addressed. Decisions that is made on materiality issues are made solely on the division stage and are therefore made on the possible influence of risks and also the opportunity of possible effects that the stakeholders can have in that partition (Steinhoff.co.za, 2017). Each section that is present becomes responsible for making its sustainability strategy and a framework that provides an overall group strategy in the aspect of the stakeholders social and environmental duties. In essence, if the group focuses on the retailing, sourcing and supply chain management will have a high attention of the supply chain management. Steinhoff particular three operational area of interest which are automotive, household goods and general merchandise.

Different principles are implemented that allow coexistence between the consumers, employees, and stakeholders. Each group allows individual targets to be endorsed at different levels, setting a divisional level and applying and managing at the operational level. The directives implemented in each group allows the establishment of a divisional committee whereby the data that is presented in the sustainability forms will become part of divisional structures which is part of the groups.

Steinhoff recognizes that the company need to be successful in having a loyal workforce, affordable capital and customer base. In this sense, there is need to offer protection and improve its status as a profitable brand (Steinhoff.co.za, 2017). The company emphasizes respect for the stakeholders, the employees and also the environment and in so doing, it establishes a business principle that cant be negotiated in the managements and the group. The systems put in place are not just there so it can safeguard the product and the business, but also to guarantee that there will be a long-term benefit of the stakeholders and the company at large.

The Motive behind Acquisition by Steinhoff of Pepkor

The motive towards the acquisition of Pepkor provided an excellent opportunity for a whole new field of discounts to be opened for the Company. The focus was to find such an acquisition that would fit the geographical footprints which Pepkor had (Sandton, 2014). Steinhoff was on the look out to acquire international discount segment which was very much possible if they acquire the shares from Pepkor group. With the intent to acquire Titan Premier Investment interest in Pepkor of 52.4 %, 37.06% from Brait and 2.81% from Pepkor management will allow Steinhoff to gain weight in the European operations ahead of the listings on the Frankfurt Stock Exchange in the second quarter of the next year (Sandton, 2014).

The transaction valued Pepkor at R68bn which was founded in 1965 enabling the group to earn 60000 stores in the whole globe with the sales of more than R155bn. The transaction would also increase market capitalization in Steinhoff since there is an enormous growth in capital if the deal should surface. The positioning of the company would be enhanced regarding the size and weight in the DAX in Frankurt (Sandton, 2014). With the vision that both Steinhoff and Pepkor shared about the world player in the discount market, the transaction was no doubt a calculated one that Steinhoff saw it coming. Steinhoff is considered to be strong when it comes to households goods and furniture while Pepkor is known to be strong on apparel and households, therefore, making the transaction beneficial to Steinhoff group.

Through the transaction deal, it would be useful for Pepkor and Steinhoff since their combined product sourcing from Southeast Asia and Eastern Europe would allow its expansion not only in South Africa but also in Eastern Europe countries.

Benefits That Would Be Acquired By Both Members

The acquisition will allow the two companies to have competitive advantage whereby the synergies will be extracted through logistics, group buying power and goods will be procured at a lower price compared to before the deal (Steinhoff International, 2015). Pepkor will offer its assistance to Steinhoff in its goal to acquire more discount retailing in South Africa. This will be essential since more shoppers will be allowed to seek out values in the middle of inflation and unemployment rate. It would help the companies to earn the trust of the people given their current situations of struggle due to slow growth of the economy.

The combined business will allow more annual sales of more than 155 billion rands and more than 6000 stores (Steinhoff International, 2015). A lot of exposure will be made and expansion of the firm with the outlets across Africa, Eastern Europe, and Australia together with various brands utilizations. Steinhoff can pay 14 times Pepkors earning before tax, interest, amortization and depreciation.

The rationale is that the acquisition can be compelling given that Steinhoffs position itself within the discount retail market segment which has enabled less affluent customers to benefit across the spectrum of trade (Sandton, 2014). It is the belief of Steinhoff that the merger will enhance its position as a leading listed global vertically integrated retail group regarding the operating scale, rich diversity, size and geographic spread.

The acquisition is expected to provide some benefit like diversification into faster moving clothes and cellular retail product which will allow Steinhoff to enhance its earnings and revenue mix. The retail activities of Pepkor and Steinhoff will be bolstered through the customer and footprint overlap together with the products that exist adding to the scale and growth profile of the combined business (Steinhoff International, 2015). There would also be potential for the meaningful Omni-channel, cross-pollination, and footprint optimization prospects within prevailing trading set-ups of the Steinhoff and Pepkor networks.

The shareholders regulatory procedures and approvals should be made to ensure that the Company complies with all the legislations and regulations in every deal it makes. The management board offer their assistance in reviewing and evaluating the significant risks that might face the company and at the same time report what is observed by the divisional management. The stakeholders are to make sure that the risk boundaries are set through the code of conduct, a delegation of authority, annual approved budgets and policies.

The shareholders Regulatory Approvals

The risk appetite will consider the category of the product, the jurisdiction and the regulatory environment with the differing categories. Since Steinhoff is prepared to accept risk in a responsible manner, the stakeholders aim to provide the everyday product with an affordable price, and therefore serving the customer well at their convenience (Steinhoff International, 2015). The shareholders make sure that the risks and the rewards of the transaction are well evaluated and ready to comply with the applicable laws and regulations to the groups and also to the operations. The Audit and Risk Committee oversees the risk management, and they examine, evaluate, report and make recommendations to the supervisory board.

With the issue concerning the acquisition, there has been adoption of an innovative extensive risk management method which allows the facilitation of evaluation of risk and mitigation measures (Steinhoff International, 2015). The division of groups is expected to have a risk management plan that will register all the details on the risk. Quantifying and prioritizing risks and containing details of plans and actions which will both mitigate the risk and exploit any opportunity that is being folded.

The Transaction and how it Impact the Local Economy

The deal allows Steinhoff to gain the African clothing market exposure whereby the local economy will benefit from the market tremendously. If I were the finance minister in South Africa, I would view the deal as a great opportunity to expose the local markets like the cloth and furniture markets which would be targeted by Steinhoff acquisition aftermath. The merger will expand different markets allowing for the existence of different consumers product (Steinhoff.co.za, 2017). Currently, Steinhoff sells beds and cupboard to the lower income people, and Pepkor targets the impoverished township mother shopping for school uniform for her children and other low-income earning citizens. In this way, I would view that the transaction has a great potential impact on the local market of South Africa. Since discount retailers have become socially accepted, it is clear that the acquisition will strengthen the discount retailing and welcome all the consumers across the spectrum.

Viewing the Transaction 3 Years from now

I would determine whether the transaction between Pepkor and Steinhoff is a success by evaluating the size and the financial strength which is paramount factors for a business to grow. The other issue would be to analyses whether the company has been closing on deals that lead to the growth of the company and not for personal gain. The financial investment...

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