Steinhoff... What next?

Shoprite-Steinhoff merger lowered both companies' share price, seemingly, a lack of clarity on how the deal is going to be structured created some negativity among shareholders.

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.

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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.