Mr Price is shopping for a takeover target – and analysts think Jet would be a good buy
- Mr Price wants to raise money, and analysts think it may be looking at buying Jet, which is owned by a bankrupt Edcon.
- While competition authorities may have some concerns about the combination, the very real possibility of job losses may focus minds.
- But some think the rumours are just rumours.
- For more articles, go to www.BusinessInsider.co.za.
Is Mr Price thinking about buying Jet?
Mr Price said in a statement that "internal market research has identified attractive growth areas and a capital raise will enable the company to pursue and accelerate these growth opportunities, whether they are organic or acquisitive in nature.”
The company confirmed that its current focus is on several growth opportunities in South Africa "rather than favouring a single large acquisition or foreign markets". Last year, Mr Price abandoned its operations in Australia after unsatisfying returns.
“Mr Price is not really known as an acquisitive company,” says Chantal Marx, head of equity research at FNB, who thinks the Jet rumours are really just rumours.
“But I think it would be a good fit. Mr Price does not really have a solid apparel offering catering for [people with less disposable income]. I also think Jet has a solid brand name and is the only true competitor to Pepkor in the value space.”
Pepkor owns Pep and Ackermans.
According to Marx, Mr Price is well-placed financially to buy Jet. The group has almost no debt, and has the resources for a big acquisition.
“And it will be a big acquisition,” says Marx. “We estimate it will add about 45% to 50% to sales.”
I think Jet makes sense. And will make even more sense in the MRP stable.— email@example.com (@chantal_marx) May 22, 2020
Stephan Engelbrecht, fund manager at Anchor Capital, says an acquisition is “certainly not off the cards. Jet is Edcon’s crown jewel.”
Debt-laden Edcon applied for bankruptcy protection in April and has not managed to pay its suppliers. A year ago, the Public Investment Corporation (PIC), landlords, and creditors funded a R2.7 billion recapitalisation of the retailer - so more relief from these stakeholders may not be on the cards.
Edcon was forced to sell CNA in February.
“I am worried about potential issues with the Competition Commission [regarding a possible Jet acquisition]. However, the commission may take a less stringent view due to the loss of jobs and the poor economy,” Engelbrecht said.
“It’ll be a good fit as they both cater for a similar market. The economies of scale make sense – it would be so much easier for Mr. Price to take over such a similar retailer. ”
Schalk Louw, portfolio manager at PSG Wealth, thinks Mr Price buying Jet is "the mostly likely option". They’re a very good fit together.”
He suspects Mr Price is looking 12 to 18 months down the line. “Consider all the interest rate reductions we’ve had recently, and the possible impact on consumer spending. Interest rate reductions mean more money in consumer pockets and, right now, there’s nowhere to spend it."
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