Johannesburg - Fashion retailer Truworths yesterday announced that it had entered the northern hemisphere market following a £256 million (R5.53 billion) acquisition of a 88.9 percent stake in UK-based youth fashion footwear Office Retail Group.
The deal would see Truworths generate around 35 percent of its revenue outside of South Africa. About 54 percent was expected to be generated from cash sales in line with the rest of the local retail sector, which was diversifying its income stream and reducing its exposure to the country and other parts of the region amid concerns of the low economic growth prospects.
Truworths shares fell 1.56 percent to R94.51 at the JSE close yesterday, which valued the company at R40.58bn.
South African retailers that are diversifying their income streams include the Foschini Group, which snapped up a majority stake in UK clothing retailer Phase Eight; Woolworths, which bought Australia’s largest retail store David Jones; and Spar who acquired an 80 percent stake in Ireland’s leading food and retail company, the BWG Group.
Truworths chief executive, Michael Mark, said: “We believe Office is well positioned in the fashion footwear market, with a high quality management team. The business has the potential to expand its store base in the UK and Germany in the short to medium term, and into other European countries in the medium to longer term.”
Truworths is expected to fund the deal through debt and cash, including R3.6bn of cash from South Africa to pay the consideration due to the sellers and the said expenses, and an £80m of term loans and £5.9m of revolving credit facilities in the UK, to refinance existing Office net debt. The transaction is subject to final approval from the South African Reserve Bank and is expected to be completed by Christmas Eve.
Alec Abraham, an equity analyst with Sasfin Securities, believed that the Office acquisition was a positive move for the Truworths business.
“It gives them some geographic room for diversification. Things are improving in the UK economy, albeit improving slowly.
“In contrast, South African consumers are under pressure. The slow economic growth outlook is getting worse after the gross domestic product was now widely expected to grow by only 1.5 percent,” Abraham added.
BUSINESS REPORT