THE BIG READ
TFG: Jet set for takeoff if bid accepted
CEO Thunström explains surprise U-turn on takeover
TFG has big plans for Jet if its R480m cash bid for the business succeeds, saying it will expand the brand's presence as well as bring it onto the Foschini owner's sophisticated online platform to boost sales.
The group intends buying a minimum of 371 of the approximately 500 Jet stores. But a further 30 to 40 Jet stores could be bought.
TFG CEO Anthony Thunström said it is trying to secure as many of the Jet jobs as possible and about 5,000 of the 6,800 jobs could be retained.
Once the business hasAnthony Thunström, TFG CEO
settled down and started
performing well we would absolutely want to continue to expand it and grow it across SA and
"However, it may be possible to secure even more of the balance of jobs if commercially viable agreements can be reached with landlords in respect of the currently marginal and loss-making stores. These lease negotiations are ongoing.
"We want to keep as many stores as possible open, which translates into keeping as many jobs intact as possible."
The deal, which includes TFG taking on R800m worth of Jet store stock, has already been conditionally accepted by Edcon's business rescue practitioners, but will also require shareholder and competition authority approval.
Thunström said once Jet's business had "settled down" and started performing well from next year, "we would absolutely want to continue to expand it and grow it across SA and Southern Africa".
An easy win
The group has stores in Australia, the UK and the rest of Africa.
"We want to invest in the business. Certainly on the technology side they [Jet] have been starved. They don't even have an online offering at all. That is a very easy win for us. We can put them onto our online platform."
Thunström said TFG would connect Jet to all its systems, not just IT, including "our planning systems, our replenishment systems".
"Our IT system is way more sophisticated than Edcon's. On the IT side they've been underinvested for probably a decade. They used to have state-of-the-art systems, but they've had no money to invest. We think there is a lot we can help them with there."
The Jet head office would not move to Cape Town, where TFG is based.
"It will stay in Johannesburg. That is where the talent sits. One thing we have learnt is that the teams that run retail businesses must be kept intact. There is absolutely no merit in moving them."
The news this week that TFG had bid for Jet came as a surprise because Thunström said at a results presentation in June that it had no intention of acquiring Edcon, or any parts of it.
But this week Thunström said that "at that point what I said was 100% accurate" because "we were not looking at any part of the business at all".
"That was on June 18. What happened subsequent to that presentation was that the opportunity specifically around Jet presented itself. The last 10 days we have pretty much worked around the clock."
Some analysts found the sudden about-turn hard to stomach.
Independent investment analyst Chris Gilmour said while Thunström "may have changed his mind" since the results presentation, it may be difficult to believe TFG in future because the company was so vehement in denying it was interested.
But he added: "The price they've agreed on is so incredibly good that maybe they just couldn't walk away from it. Even if you have to write down that [Jet clothing] stock to half, you're getting it pretty much for nothing."
He said TFG was also undertaking a R3.95bn capital raise and this deal was a fraction of that, "and in the process they get the whole of Jet".
"This is an amazing deal, a phenomenal deal."
FNB portfolio manager Wayne McCurrie said it appeared TFG was "getting Jet very cheaply".
"They're buying it at the bottom of the cycle. If you can afford to buy anything, now is the time to buy something in retail or any consumer-facing company.
"As far as I can work out, they're not taking on any liabilities, other than the lease liabilities. It looks like a very good deal for them."
On TFG's U-turn on a deal with Edcon, McCurrie said: "If it's a good deal and it's presented to you under different circumstances and at a different price, you're allowed to change your mind."
This week's deal was not the first time TFG had considered Edcon as an acquisition opportunity.
Thunström said TFG had looked at buying Edcon four or five years ago but after an extensive six-week due diligence examination, decided against it.
"At the time a couple of things made a deal undoable. Firstly, they had sold their debtors book to Absa and Absa didn't really have a consumer credit appetite.
"Issue number two was they had done insufficient work to make the separation of IT systems for Jet and Edgars possible. You would have spent years untangling it at a huge cost. That put us right off."
TFG also balked at the then R10bn price tag for Edcon, with more than half of that amount for Jet.
"On top of that we would have had to buy the [debtors] book from Absa as well, and that was probably another R5bn on top of the R10bn. It was way too expensive for us."
A better deal
Fast forward to mid-2020 and a far more favourable Jet deal was brought to the table. Thunström said the group was "able to go back to our original due diligence" and discovered that a lot had changed at Edcon.
The estimated number of jobs
out of 6,800 that TFG plans to retain at Jet
"They had done a huge amount of work to prepare the business to be split off, so integrating it onto our systems is much simpler than it would have been five years ago. They don't have the book sitting with Absa any more, it's now sitting with RCS, which specialises in consumer credit. They [Edcon] by and large solved their credit issue."
He said another attraction for TFG was the "high-calibre management team at Jet" under CEO Shane van Niekerk, who was formerly a joint MD of Mr Price.
Jet's management includes some former TFG people. "There is a very good cultural fit and the purchase price now is a fraction of what it would have been five years ago. If you add it all up, it's a very attractive deal."
Thunström said that previously TFG had limited exposure to the value retail segment and that the Jet deal would allow it to "become a more serious player" in this sector.
TFG believes this will be an "increasingly important retail space in SA, given all the economic headwinds we face".
Retailers have already been hit by the lockdown. TFG's trading update this week showed retail turnover had declined 43% for the three months ended June 27, compared with the same period last year.
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