Pick n Pay finishes sale of Australian business

By Time of article published Oct 3, 2011

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Samantha Enslin-Payne

Pick n Pay has concluded the sale of its Australian business, Franklins, after a lengthy delay, enabling it to focus on fixing its South African operations and expanding in Africa.

Australian group Metcash is now responsible for Franklins. But there is still a hurdle as the Australian Competition and Consumer Commission (ACCC) is appealing a court ruling approving the sale.

In August Metcash won court approval to buy Franklins after the court rejected the ACCC’s argument that the deal would reduce competition. Last month the ACCC announced it would appeal. The appeal hearing is scheduled for later this month.

But Pick n Pay said on Friday that the sale of Franklins, which was first announced over a year ago, had been completed. This followed the decision by the Federal Court of Australia to dismiss an application by the ACCC for an interim injunction to prevent the sale before its appeal could be heard and decided.

Chris Gilmour, an equity analyst at Absa Investments, said: “The fact that they have proceeded with the deal even though the ACCC’s appeal had yet to be heard does bother me. They must very confident the appeal will go in their favour.”

Pick n Pay chairman Gareth Ackerman said the group’s confidence was boosted by the judgment “in our favour in the Federal Court in late August and by the court’s denial of the ACCC’s application for an interim injunction”.

Ackerman said the exit from Australia enabled the group to increase its focus on Pick n Pay’s core market and allowed for progress on a number of initiatives, such as centralising buying functions, category buying, the rolling out of regional distribution centres, store refurbishments and additional investment in the Smart Shopping loyalty programme.

In April Pick n Pay reported a decline in profit due in part to not investing in distribution and technology as fast as rivals. The group is due to report interim results later this month.

Gilmour said the sale was very significant for Pick n Pay as it meant it would be able to redeploy capital in Africa, where it should have been in the first place.

A Pick n Pay spokesman said part of the sale’s proceeds of R1.4 billion would be used for African expansion, though it was primarily through franchise stores, so the upfront capital expenditure “is not ours”. The primary use of the proceeds would be in South Africa.

Last week the group announced the opening of its first store in Mauritius, with a further two stores to be opened there in the next year. Pick n Pay also operates in Mozambique, Namibia, Botswana, Lesotho, and Zambia.

Shares of Pick n Pay Holdings rose 0.2 percent to R15.31 while Pick n Pay Stores fell 0.95 percent to R36.50 on Friday.

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