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Steinhoff International - Change of strategy?

It was scarcely a week after reiterating its strategic positioning at an AGM that industrial conglomerate Steinhoff International surprised the market by taking a 20% stake in Stellenbosch investment house PSG Group.
While Steinhoff is a self-titled "active investment company" it does seem rather curious that the group is now taking a strategic stake in a company that holds an investment portfolio that leans heavily towards financial services (Capitec Bank and PSG Konsult make up the bulk of the portfolio value).

As things stand Steinhoff comprises three operating units that are far removed from the financial services arena.

These are Steinhoff Europe (a provider of mass-market furniture and household goods), Steinhoff Africa (a diversified industrial company, including logistics, timber and industrial raw materials) and a sizeable investment in JD Group (a furniture retailer).

Presumably PSG will present a fourth leg, but whether this leg strides towards building a financial services component or remains a strategic investment in a portfolio of quality assets remains to be seen.

What the PSG deal does confirm is that Steinhoff is intent on taking the form of an investment trust, and with a market cap of around R40bn it could be a rival to the Rupert family's Remgro.

In the months ahead Steinhoff will develop its structure by ultimately holding majority and influential minority stakes in four separately listed counters. This will materialise after the planned listing of the European furniture segment and reverse listing the African industrial operations into KAP International

While Steinhoff will hold control of the European furniture business and the new-look KAP listing as well as being a major shareholder in JD Group, the big question is whether the group will look to increase its stake in PSG.

Steinhoff certainly has the capacity to push for a bigger stake in PSG. But it's doubtful Steinhoff's prime mover, Markus Jooste, would want to antagonise his close friend Jannie Mouton, the PSG founder. Jooste became a close ally of PSG when he emerged as the "white knight" in 2001 when banking giant Absa was pressing for a takeover.

It seems PSG is not just an asset play for Steinhoff. Jooste's decision to "institutionalise" his personal stake in PSG (held via nominee company Mayfair Speculators) along with stakes held by PSG empowerment affiliate Thembeka and retail tycoon Christo Wiese (see page 51) is surely telling.

One suspects there is a rationale for taking an influential position in PSG other than Steinhoff's admission that its investment approach includes taking noncontrolling interests in strategic quality assets "with potential synergistic benefits" to existing investments. Explaining the PSG investment, Jooste noted PSG held many such quality assets.

PSG's biggest investment is in Capitec Bank. Wealth management specialist PSG Konsult, agribusiness investor Zeder Investments, empowerment investment company Thembeka and private education venture Curro rank as significant investments. There are also a number of "rats and mice" in mining, construction, private equity and energy.

At face value nothing jumps out as holding synergistic benefits with any of Steinhoff's operations, unless one considers KAP as a receptacle for the various small mining and construction-aligned investments that PSG held under its old Paladin umbrella.

KAP itself does hold some assets that might at a stretch be construed as agribusiness-aligned. If there's a perception that such assets are buried when Steinhoff's African assets (transport conglomerate Unitrans being the most formidable) are reversed into the company then this may see the ushering of certain assets (Bull Brand and Brenner Mills, for instance) towards Zeder.

But if there really is a synergistic benefit to investing in PSG, aside from PSG Capital hunting down new deals for Steinhoff, it may well lie in a link between Capitec's successful mass banking offering and JD Group's consumer finance business.

Source: Financial Mail



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