TFG was 'not interested' in any part of Edcon - so what's behind the about-turn?

The Foschini Group says it is looking at a new rights offer.
The Foschini Group says it is looking at a new rights offer.
  • Less than a month ago, TFG's CEO Anthony Thunström told shareholders that the group was not interested in any part of Edcon. 
  • But it has now been announced that TFG made a R480 million offer to buy JET stores. 
  • Analysts have described the move as "a bit of a shocker" and an "about-face". 

The announcement by The Foschini Group (TFG) that it has made a R480 million offer to buy JET stores likely came as a surprise to many shareholders.

Less than a month ago, at the presentation of the company's financial results, the fashion retailer's CEO Anthony Thunström told shareholders that the group was not interested in any part of Edcon.

The about-turn

At the time, Thunström said while he thought the JET brand was "the most attractive part of Edcon" because of the segment it serves, TFG was "not interested as a buyer". The fact that JET and Edgars' shared head office operations, IT and logistics infrastructures would not be profitable for TFG to try and "untangle" a business on the other part of the country when TFG's head office functions are in Cape Town, he said in June.

But now TFG is looking at acquiring a minimum of 371 JET stores, JET's distribution centre in Durban, and stock worth at least R800 million, among other things. 

"This is a bit of a shocker because it means that TFG was publicly dishonest about their interest in Edcon," said Lulama Qongqo, an investment analyst at Mergence Investment Managers.

Retail analyst, Syd Vianello also said the acquisition announcement was "a bit of an about-face".

"He said scarcely a month ago that he wasn't interested in any part of Edcon whatsoever. Suddenly he is interested in some of it," said Vianello.

Meanwhile Thunström said being able acquire selected parts of the JET business is a unique opportunity which was previously not possible at an attractive price. 

The attractive price

The R480 million purchase price for all the assets that TFG is buying and the rights in the JET Club looks like a bargain. But Vianello said the price reflects the uncertainty that comes with buying a company that is in trouble.

"Firstly, I don't think they know what they can sell all that stock for. They may have issues with that. Secondly, they don't know if all those stores are going to become profitable immediately. So, they built-in expectations that there could be losses initially," he said.

Over and above these unknowns, Vianello pointed out that TFG will be taking on staff costs and their liability in that regard will depend on whether TFG will have to honour leave payments and take on their pension fund liabilities among other things.

All TFG said in its statement was that it will "assume the operational commitments associated with the commercially viable stores only, such as employee and lease commitments, albeit on a renegotiated basis."

It also said it will take on certain head office staff and functions.

The group didn't say anything about Edcon's debt related to the JET brand. Qongqo said investors will have to wait for more clarity on that but she believes that TFG is in no position to inherit debt from Edcon. "And acquiring a company that makes a portion of their sales on credit is risky because they face major risk of default due to the negative economic situation the country is facing," added Qongqo.

TFG is due to host an extraordinary general meeting on Thursday 16 July.

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