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The market has been jawboning the idea of a Shoprite-Steinhoff merger for the last couple of months and yesterday it was confirmed; sending both companies share prices lower as seemingly, a lack of clarity on how the deal is going to be structured created some negativity among shareholders. The merger will ultimately create Africa’s largest retail provider; Retail Africa, with Steinhoff’s retail operations being absorbed into Shoprite. Steinhoff will supposedly acquire Shoprite shares held by the PIC and Christo Wiese in exchange for a Steinhoff-for-Shoprite share exchange at a ratio that has yet to be disclosed.
The perceived lack of clarity may be the single biggest reason for the selloff in both shares yesterday and one cannot help but feel this creates a renewed opportunity to buy in to two strong, well-managed companies with good growth prospects. The downward trend visible in the chart has been broken by the strong price action emanating from the 7th of December, accompanied by strong trading volume and the first pullback to test previous resistance, now new support would be considered a buy as long as the share price can hold above 7000c. It is interesting to note that there was some upward pressure from buyers as bears did not have it all their own way with the share price trading off the lows going into the close. A close below 7000c would consider a further downside move to 6650c if the consolidation fails. The initial upside target for buyers would be considered at 7650c. More cautious traders may want to observe a three day rule as further details of the deal should be expected.