Johannesburg - Truworths has firmed up its bid to expand in the UK as it says it has put £256 million on the table to buy a 88.9 percent stake of Office Retail Group.
The R5.5 billion price tag will be funded in cash, it adds.
Truworths says the deal, which is being done through its UK unit, Shoo 615, “marks the entry of Truworths into the northern hemisphere markets”.
Truworths said in mid-September it had entered “preliminary non-binding negotiations” over a possible acquisition of Office Retail Group.
In a statement issued on Monday, the company noted the UK retail market is characterised by the presence of several large urban agglomerations, and a high proportion of young educated adults, with a sizeable share of disposable income.
“Office is a highly attractive business with strong prospects which, under Truworths’ ownership, will be further enhanced. The business is well positioned in the fashion footwear market with potential to expand into many new stores in the UK and Germany in the short- to medium-term and into other European countries in the medium- to longer-term.”
The deal also allows the local fashion retailer to expand its operations, extend its product offering, benefit from currency diversification and balance its revenue between cash and credit sales.
Office supplies young fashion footwear retailer in the UK and Republic of Ireland; offering men’s, women’s and sports footwear to fashionable 16 - 25 year olds at the mid-level price range.
It was founded in 1981 and has since grown to 104 stores and 47 concessions in the UK, as well as 5 in the Republic of Ireland, trading under the “Office”, “Offspring”, “Poste” and “Poste Mistress” brands. In 2014, Office started expanding into continental Europe and has, so far opened 6 stores in Germany. Its e-commerce business accounts for about 20 percent of sales.
Truworths has more than 650 stores in South Africa and 40 in the rest of Africa. It forms part of Truworths International, an investment holding whose brands incorporate Identity, YDE and Uzzi.
In the 52 weeks to June, the company - which has bought children’s clothing companies recently - reported net income up 2.6 percent to R2.47 billion as retail sales increased 12 percent in the second half of the financial year.
In the first half, retail sales gained 5.2 percent.
Retail sales (excluding its recent purchases of Earthchild and Naartjie) for the first seven weeks of the 2016 financial showed a gain of 15 percent year-on-year.
Truworths says Office’s management will keep 11.1 percent of the company, but Truworths could later buy this out.
The locally-listed company will fund the deal and settle existing Office debt, as well as transaction expenses, through a combination of:
- Some R3.6 billion of cash from South Africa to pay the consideration due to the sellers and the said expenses, and
- £80 million of term loans and £5.9 million of revolving credit facilities in the UK, to refinance existing Office net debt.
In the year to January, Office generated sales of £270.2 million.
IOL