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Steinhoff merger one step closer with exit of Basson

| On the move

The retirement of Shoprite CEO Whitey Basson meant a merger between Shoprite and Steinhoff was one step closer, analysts said on Monday, following news of his imminent departure.

After the annual general meeting Basson stressed his decision to retire had nothing to do with speculation about a merger between Shoprite and furniture and clothing retailer Steinhoff, which he is thought to oppose. "The stress of running a big business is massive, I’m constantly fighting on several fronts," said the man who joined a small local retail company 37 years ago and drove it to become Africa’s largest food retailer.

"There’s so much red tape and all sorts of stuff that takes up so much time, I’m tired of it all now, you need to be young," said Basson, who described his successor, Peter Engelbrecht, as "a very good guy, very driven".

Engelbrecht, currently chief operating officer, is set to take over the top job on January 1 2017. He was previously Basson’s personal assistant.

"We’ve been preparing him for the CEO position for the past five years," Basson said.

Analysts said the fact that the Shoprite share price spiked after the news that its driving force was retiring pointed to expectations that Christo Wiese, chairman of both Shoprite and Steinhoff, would push hard for a transaction that has been on the cards for almost a decade.

Wiese is the single largest shareholder in both groups, with an 18% interest in Steinhoff and 16% in Shoprite. In 2014 he sold clothing retailer Pepkor to Steinhoff for R62.8bn.

Steinhoff, which has grown dramatically in recent years to become the second-largest household goods retailer in Europe, listed on the Frankfurt Stock Exchange in December 2015 and was Germany’s largest listing of that year with a value of €19bn.

Wiese, who also dismissed speculation that Basson’s retirement decision was linked to possible plans concerning a Shoprite-Steinhoff merger, told Business Day after the annual general meeting that there had been talk of a tie-up between the two retailers since 2006.

"Such a deal would involve giving shareholders all the options you can," said Wiese, who added that a tie-up with Steinhoff would give Shoprite an international balance sheet.

Retail analyst Syd Vianello said a merger could happen only after Basson left.

"And Basson was only going to leave when Basson wanted to leave," Vianello said.

He added that although Wiese was the single largest shareholder in Shoprite, shareholders holding 80% of the grocery retailer would have to be persuaded that the merger was in their interest.

"Steinhoff bought Pepkor on a 20 times price/earnings, Shoprite shareholders will be expecting at least that sort of valuation," Vianello said.

Mehluli Ncube, an investment manager representing three pension funds including that of Eskom, asked Wiese if there were any plans to award Basson a golden handshake on top of the R50m bonus he had been awarded for 2016.

"We don’t dispute that Mr Basson has done an excellent job but in the current social context it is downright reckless and irresponsible to have awarded him in this way," Ncube said.

Wiese said the company would follow the dictates of Basson’s service agreement. "There’s no golden handshake from the company," Wiese said.

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