Steinhoff faces a firesale, but it's set for a fizzle: Gadfly

London - With the crisis deepening at Steinhoff International [JSE:SNH], a January sale of its assets looks increasingly likely. But this is not the time to be offloading retail businesses.

The company was putting a brave face on its operating performance at a presentation to creditors on Tuesday.

That does not alter the fact that for some of its large assets, buyers are unlikely to be queuing up. And it's not just because of risks stemming from the increasing loss of lines of credit. 

Take Conforama, the French furniture retailer. Steinhoff said it experienced a 1% fall in core like-for-like sales in the year to September, although they turned positive in October and November.

The company faces serious competition that extends beyond Local rival Fnac Darty SA is already muscular, and could get stronger. Its former CEO, Alexandre Bompard, now runs supermarket Carrefour SA, raising the prospect the two groups could combine - they've already teamed up to buy consumer electronics in France.

Then there's Mattress Firm in the US Steinhoff paid handsomely for this business in 2016, and it has since struggled. Steinhoff didn't disclose detailed trading figures on Tuesday, but did say it needed another $200m to continue restructuring the business in 2018. Any buyer would have to fund this.


The other European assets are a mixed bag.

Pepco, the Eastern European variety retailer, could be attractive - like-for-like sales expanded 20% in the year to September.

Steinhoff said Poundland, the UK discount retailer it bought last July, had increased like-for-like sales by 4% in the current financial year. But the chain faces competition from rival B&M European Value Retail SA, and food retailers. It's also particularly exposed to the worries on credit availability. 

Conditions are not ideal for a sale of its UK furniture retailers, Bensons for Beds and Harveys Furniture. Some of their competition, Feather & Black and Multiyork, recently fell into administration. Big-ticket items have been a casualty of Britons' incomes being squeezed by inflation. 

Christo Wiese, Steinhoff's largest shareholder and until recently its chairperson, also backs investment vehicle Brait SE [JSE:BAT]. That owns New Look in the UK, and a majority stake in Iceland Foods.

Brait hasn't been affected by the problems at Steinhoff so far, and there's no guarantee that there will be any knock-on effects. But with Wiese having a 35% stake, it can't be ruled out. If there were to be any shake-up here, Brait's European retail assets are yet another diverse assortment for would-be buyers to consider. 

As my Bloomberg colleagues Sam Chambers and Tom Beardsworth have noted, New Look faces a crucial Christmas, after sales and profits have slumped. 

Brait also owns 60% of Iceland Foods. The frozen food retailer has revitalised its trading after suffering at the hands of the German cut price supermarkets. There would likely be willing acquirers too. Founder Malcolm Walker led a buy-out of the chain in 2012, and continues to have control over the business. He and his family could up their stakes again.

With supermarket consolidation back in fashion, trade or private equity buyers might also be interested. Wm Morrison Supermarkets looked at Iceland five years ago, but ultimately did not make a move.

While the share price reacted violently to the lack of progress on Tuesday with bank creditors, the bonds of Steinhoff were less perturbed. But that is because they're already assuming no value for shareholders.

There will be some worth in Steinhoff's retail chains. But investors shouldn't get their hopes up that it will be much.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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