Lewis Group shares climbed as much as 5 percent at one stage but closed at R66.45, 4.15 percent up on Friday following an announcement that the company was interested in buying Beares and some selected stores from the battling furniture retailer Ellerines.
Bears furniture stores, which have been trading in South Africa for more than 80 years, are a second brand to be sold off by Ellerines, which was put under business rescue due to the collapse of its parent company, African Bank Investment Limited (Abil). Another brand, Dial-A-Bed was bought by Coricraft last week.
Abil collapsed following its poor performance from incurred losses amounting to R3 billion since 2009. In the 2013 financial year, Ellerines incurred losses of R1.1bn.
Lewis Group said in a statement that practitioners acting on behalf of Ellerines had accepted the offer, and agreed to negotiate with the company on an exclusive basis with a view to conclude a binding sale agreement.
The agreement will be subject to various suspensive conditions, including the approval of the South African competition authorities.
Lewis group chief executive Johan Enslin said: “Beares is a strong and well established brand across South Africa. The acquisition of Bears aligns with our strategy of gaining access to higher LSM [Living Standards Measure] customer group and will also enable existing Lewis customers to migrate upwards to the Bears brand.”
Chris Gilmour, an equity analyst at Absa Investment, said it was unlikely for Ellerines to be sold in its entirety, “the only way it could be sold is piece-meal,” he said.
Gilmour thought it was interesting that Lewis chose to buy Beares, as it was a bit upmarket compared to other brands. “From that perspective it would probably compliment it quite nicely,” he said.
He was also of the view that someone could have bought Wetherlys as it was probably less affected by economic downturn, as well as the crisis in microlending.
Gilmour said the Ellerines stores would be most difficult one to find a buyer for. He ruled out any possibility of JD Group buying any of Ellerines stores.
He said people behind Ellerines business rescue plan were working hard given that the country was in a middle of interest rates hikes and that consumers were under pressure.
“The background is not conducive in finding buyers. Given that unfriendly ambience situation, I think they have done remarkably well,” said Gilmour.
Abri du Plessis, the chief investment officer at Gryphon Asset Management, said Lewis’ share price was driven by the company’s offer to Beares.
However, Du Plessis was surprised that the share price was that high, given the retailers’ trading environment in South Africa.
“The retail trading is tough, we are sitting in the rising interest rate environment accompanied by micro-lending bubble,” said Du Plessis.
He added he still could not see a bright future for credit retailers. “However, Lewis is a much better operator and they are very conservative with their book,” he said.
Du Plessis believed one of the reasons why Lewis is buying Bears stores was because it had some good locations.
“If they acquire Beares for the locations and convert them to Lewis stores, it would make great sense.”
He added that should this happen, it would broaden Lewis’ footprint. Enslin said on approval of the transaction, the group planned to integrate the business into Lewis’s stores, merchandise, supply chain and credit operations.
On the question of who would buy Ellerines’ remaining brands such as Furniture City, Geen & Richards, Wetherlys and Ellerines stores, Du Plessis said there were still possible buyers.
Furniture City for example would fit well with Shoprite’s House & Home stores, while Ellerines could do well with the JD Group, suggested Du Plessis.