JOHANNESBURG South Africa's Steinhoff and grocery retailer Shoprite called off a deal to create an African shopping giant on Monday, preventing leading investor Christo Wiese from bringing more of his retail assets under one roof.
Billionaire Wiese, a shareholder in both companies and the architect of the deal, and other investors including state-owned pension fund the Public Investment Corporation (PIC) could not agree on the value of a share exchange.
The collapse of the deal will test Wiese's determination to place more and more of his assets in one basket. It is a major victory for at least three of Shoprite's minority shareholders who told Reuters last week the commercial and strategic logic did not stand up to scrutiny.
The combination was estimated to have a value of more than 180 billion rand ($13.8 billion).
In a joint statement, the two firms said "the fact that the relevant parties could not reach an agreement in respect of the share exchange resulted in the negotiations being terminated."
Complaints by Shoprite minorities -- that the deal was sparse on details, lacked obvious cost-savings overlaps and would mean exchanging a stock with bigger potential for what they called inferior businesses -- had depressed both companies' share prices.
"There was no real synergies between the two," said 36One Asset Management fund manager Evan Walker.
"We own shares in both, (and) kept shares in both hoping the deal would fail and sanity would prevail."
Shares in Shoprite traded 7.5 percent higher at 1435 GMT. Steinhoff jumped 5 percent in Frankfurt and 4.8 percent in Johannesburg, where it has a secondary listing.
Under the deal, Steinhoff would have sold its African assets to Shoprite in return for a controlling stake in the $8 billion grocery chain. Steinhoff would have exchanged its shares for those of Shoprite's top two shareholders -- Wiese and the PIC, which like Wiese owns shares in both companies.
The deal would have given Steinhoff, dubbed Africa's IKEA and which vies with the Swedish firm for global market share, a major interest in Shoprite, a 110 billion rand company operating in countries including Ghana, Nigeria and Angola.
It would have also ensured Wiese, who owns 16 percent of Shoprite, moved more of his assets into Steinhoff, in which he owns a 23 percent stake bulked up in 2014 through the cash and share sale of his Pepkor chain to the furniture retailer.
For Shoprite the termination of the deal allows it to focus its attention on growing its store network elsewhere on the continent.
It could also reassure Steinhoff's shareholders who might have had concerns about a major deviation from its stated strategy of selling low-cost furniture and household goods.
"In my view, the deal was not crucial to either Shoprite or Steinhoff and it's failing should not detract from the investment case of either company," said Unathi Loos, an analyst at Investec Asset Management.
Steinhoff also owns retailers Poundland in Britain and Conforama in France.
However, the collapse of the tie-up might not deter Steinhoff from buying control of Shoprite if food retail is the cornerstone of its new strategy because the company could buy out a controlling stake from Wiese, who told Reuters last year he was looking for ways to consolidate his assets.
"It's not the first time Wiese has tried to take out Shoprite. I don't think will be the last," Gryphon Asset Management's Chief Investment Officer Abri du Plessis.
Wiese, through his investment vehicle Brait SE, tried and failed in 2007 to buy Shoprite in a $2 billion deal because Shoprite and Brait could not agree on the price.
Besides his direct Shoprite holding, Wiese owns another 35 percent in deferred shares, which carry the same voting rights, through his investment vehicle, Thibault Square, meaning he controls about 50 percent of Shoprite. ($1 = 13.0608 rand)
(Reporting by Nqobile Dludla; Writing by James Macharia and Tiisetso Motsoeneng; Editing by Keith Weir)