24 October 2003

South Africa: Pepkor Set to Quit JSE in R2,1bn Equity Offer

Cape Town — Empowerment and expansion abroad will be major beneficiaries of delisting

Pepkor, the owner of almost 2000 retail stores in Africa and Australia trading as Pep Stores, Ackermans and Best & Less, looks set to exit from the JSE Securities Exchange SA after 31 years on the bourse.

Private equity firm Brait SA and Old Mutual Life Assurance have announced a firm intention to make an offer to acquire all the ordinary and preference shares in the mass-market clothing retailer for R10 a share, in a deal that values Pepkor at about R2,1bn.

The roots of the Pepkor group go back to 1965 when the first Pep Store was opened in Upington. The group was listed on the JSE in 1972. It now employs more than 17000 people and its revenue exceeded R7bn in its last financial year to June.

But if more than 75% of shareholders accept the Brait and Old Mutual offer, the company would be delisted early next year another casualty of weak market conditions in the past few years that have seen the number of listed companies shrink to about 400 today from more than 600 10 years ago.

The deal will have two significant benefits for the Pepkor group. It is structured to introduce a black empowerment partner with a holding of 7,5%-10%, and it will give the group access to Brait's offshore private equity funds to enable it to grow its foreign activities. It plans rapid growth for Best & Less in Australia and recently bought a 49% stake in the UK retail chain, Your More Store, as well as a similar stake in a Polish retail business.

The deal makes a provision for senior management of Pepkor to hold up to 10% of the shares in Pepkor's new owner provisionally called Newco as an executive incentive plan.

The chairman of Pepkor and its largest single shareholder is Christo Wiese, with a 21% stake.

Wiese said yesterday there would be no fundamental change in the way the Pepkor group did business, except that it would be an unlisted company rather than a listed one. He said he had not initiated the deal, but was approached by Brait and Old Mutual. He was not looking for an exit from Pepkor. Depending on the structure of the deal, his stake in Newco could be more than 21%.

Brait said one of the reasons for making the offer was to eliminate the discount in the market rating of Pepkor's ordinary shares on the JSE. The shares surged to 980c from 840c yesterday afternoon, but the group's latest annual report shows the average market price in the year to June was 484c a share. The net asset value was 531c.

In terms of the offer, which requires regulatory approvals, Pepkor shareholders can either take R10 in cash a share, or a reinvestment alternative worth R1000 for every 100 Pepkor shares they hold. The reinvestment alternative would give shareholders 60,9 shares in unlisted Newco and interest-bearing loan claims of R939,12 against Newco for every 100 shares held.

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