JOHANNESBURG Bain Capital LLC has made a 25 billion rand ($3.48 billion) buyout offer for South Africa's largest fashion retailer Edgars Consolidated Stores (Edcon) ECOJ.J in the country's biggest private equity deal yet.
Edcon said in a statement the cash offer was 46 rand per ordinary share and 2.00 rand for each preference share. Edcon's board has recommended that shareholders accept the offer.
Rennaissance Asset Management head of research, Nothando Ndebele, said it was an excellent offer. "I can not really see a lot of people objecting to it," she said.
Edcon said the offer represented a 61.6 percent premium to the 30-day volume weighted average price of Edcon ordinary shares on October 16, the day before the group first said it was in talks.
The deal will be the biggest private equity buyout yet in South Africa. Shares in Edcon surged as much as 12.8 percent after the group unveiled the offer details.
Edcon non-executive chairman Selwyn MacFarlane said the board saw the offer as an exceptional opportunity for shareholders to realize substantial value from their investment.
"Following a comprehensive auction among global private equity firms, and receipt of a preliminary fair-and-reasonable opinion from PricewaterhouseCoopers, the Edcon Board of Directors unanimously recommended Bain Capital's bid to shareholders."
Edcon spokeswoman Tessa Christellis said the Edcon board and management had approached private equity players about a possible transaction.
"There was a feeling that the share was being under-valued by the market," she said.
Bain Capital Managing Director Steve Zide said the firm was pleased to be part of the next phase of the growth of Edcon.
"We have been greatly impressed by the world class quality of the Edcon business, its systems and their people. Our belief in the growth potential of the South African economy is a significant factor in our investment decision," Zide said.
Edcon said the transaction would be funded with a financing package of long-term debt and equity, with Barclays plc (BARC.L) and Absa Capital ASAJ.J providing the debt financing. Citigroup (C.N), Credit Suisse CSGN.VX and Standard Bank (SBKJ.J) supported Bain Capital in the transaction.
By 0917 GMT, Edcon's shares were trading 10.68 percent ahead at 44.16 rand, driving up the JSE retail index .JGERE by 2.6 percent.
There has been a lot of interest in South Africa's retail sector from both foreign and local private equity players, with Africa's largest grocery chain Shoprite (SHPJ.J) receiving a 15.22 billion rand offer from Brait (BATJ.J) late last year.
Gryphon Asset Management Chief Investment Officer Abri du Plessis said international retailers did not really have a presence in South Africa, a market still showing strong consumer demand.
"Retail is a safe sector and probably a lot less risky than other sectors in the economy," he said.
Last month, investment bank Brait SA launched the continent's largest private equity fund, the $880 million Brait Fund IV, drawing investment from global players.
Brait said it was looking at deals in the consumer and retail sectors among others.