Pep. Picture: BLOOMBERG/WALDO SWIEGERS
Pep. Picture: BLOOMBERG/WALDO SWIEGERS

Johannesburg/London — Steinhoff International is gauging takeover interest in businesses including clothing chain Pepco as the scandal-hit retailer prepares for the next phase of a recovery plan, according to two people familiar with the matter.

The South African company has informally sounded out potential buyers for Pepco including private equity firms, said the people, who asked not to be identified as the plans are not public.

The profitable chain, with more than 1,300 stores in eastern European countries such as Poland and Romania, has emerged as one of the jewels in Steinhoff’s crown as the retailer battles to survive an accounting scandal.

A formal auction of Pepco could come if or when Steinhoff agrees to a €9.4bn debt-restructuring deal with bondholders and other lenders, seen by the company as a crucial step towards avoiding insolvency.

The retailer is negotiating a two-year payment delay, people familiar with the matter said last week, and the company said on Friday it had enough backing to extend the talks until July 20.

Steinhoff declined to comment.

Steinhoff shares have lost more than 95% of their value since the company reported accounting irregularities in December.

While the retailer is only midway through a year-long investigation into its finances, the stock bounced this week following the release of unaudited half-year earnings and a partial restatement of discredited figures late Friday.

The shares gained 38% on Tuesday, and rose a further 3% trade at to €0.12 at 9.08am in Frankfurt on Wednesday.

While private-equity firms await a formal sale process, Steinhoff Africa Retail, which was spun off by Steinhoff before the scandal erupted, has made an expression of interest for both Pepco and UK discounter Poundland, the people said.

The approach was rejected, though Star, as the retailer is known, remains interested.

Steinhoff owns about 71% of Star, whose finances have been broadly untainted by the scandal.

A spokeswoman for Star did not respond to requests for comment.

"The future shape of the group should start to become clearer, although there is likely to be tension because the most saleable parts of the group are those that would be most attractive as part of a future Steinhoff," Charles Allen, a retail analyst at Bloomberg Intelligence, said in a note.

Expansion drive

Pepco’s revenue jumped 40% in the half-year to end-March, according to the unaudited financials published last week. The company is also on an expansion drive, and is targeting 1,500 outlets by the end of September.

Poundland, which has 871 outlets selling a range of household items for £1 a piece, bucked a tough UK trading environment to post half-year like-for-like sales growth of 2.4%.

Steinhoff bought Pepkor Holdings, which included what was to become Pepco, and Poundland as part of an acquisition spree starting in 2015.

Pepco and Poundland are now grouped together by Steinhoff as Pepkor Europe, which reported earnings before interest, taxes, depreciation and amortisation growth of 28% in the six months to end-March.

Most of Pepkor, the pan-African clothing retailer Pep, is now part of Star, which is in the process of changing its name to Pepkor to distance itself from its parent.

Bloomberg