Poundland shares soar on South African takeover talk

Discount retailer Poundland has urged investors to “take no action” after Steinhoff International, the South African retail group, said it was considering a takeover.

Steinhoff confirmed in a statement that it was looking to buy the company just months after losing out to Sainsbury’s in a £1.4 billion battle to take over Home Retail Group, the owner of Argos.

Poundland shares rose more than 3 per cent in on the London market in early trading rising above 200p, the first time the stock has traded at these levels since the start of the year. At the current market price the retailer is worth about £540 million.

Steinhoff said its statement had been made without the consent of the discount retailer. Poundland responded an hour later with its statement. “There can be no certainty that a firm offer will be made, nor as to the terms on which any firm offer might be made,” it said as it told shareholders to do nothing.

The offer from Steinhoff came as the private equity backer of Poundland sold its last remaining stake in the business. Warburg Pincus, which floated the company two years ago, yesterday sold its remaining 15.3 per cent holding in the company at a price of 195p, according to traders.

It is not known who bought the 40.9 million shares but speculation was that Steinhoff and Brait, the South African investor in companies including New Look and Iceland, were the buyers.

Any bid for Poundland would come at a time when the business is struggling with a downturn in trading. The company will on Thursday announce its full-year results, which are expected to show a fall in earnings as the business copes with the £55 million takeover of 99p Stores.

For Steinhoff the acquisition of Poundland would continue its expansion into the UK’s discount retail market. The South African retailer already has 50 Pep & Co stores and has plans to open a further 20 later this year, as well as launching a new “Guess How Much” store format.

Analysts at Royal Bank of Canada said the Poundland deal would accelerate this strategy. “On the one hand this fits with Steinhoff’s strategy of diversifying away from South Africa and should be an opportune time for a purchase given Poundland’s depressed share price and valuation and the recent integration challenges of its acquisition of 99p Stores,” said RBC.