Pick n Pay to List Boxer Amid Financial Strain, Aiming to Raise Billions

Pick n Pay, one of South Africa’s largest supermarket chains, has revealed a strategic maneuver reminiscent of a corporate chess move by opting to list its highly profitable subsidiary, Boxer, on the Johannesburg Stock Exchange (JSE). This decision comes during a financially precarious period for the retail giant, which is grappling with substantial debt and a pressing need for capital injection.

Similarities in the business strategies of both Pick n Pay and Transaction Capital have surfaced, with each company facing a crucial junction concerning their financial health. Despite their market capitalisations being fairly close—R11 billion for Pick n Pay and R7 billion for Transaction Capital—they both share a commonality: the struggle to uphold value in an unforgiving market environment that has seen their respective stock prices plummet well below their year-long peaks.

For Transaction Capital, the approach to tackle this has been to unbundle and list its prized possession, WeBuyCars, essentially isolating the potential financial risks by removing cross-default triggers prevalent within the overarching company structure. Pick n Pay's response to the challenge follows a similar outline. By listing Boxer, the plan is not only to raise much-needed cash but also to maintain a majority stake in the asset. This course of action speaks to the broader strategic thinking aimed at safeguarding the parent company's controlling interest while leveraging the value of its affiliate.

Pick n Pay's urgency for cash is underscored by the stark reality of its net debt reaching R7.2 billion—almost twice the amount posted at the end of August in the previous year. Although some improvement was noted in February, the retailer still encounters a demanding financial cliff, specifically with the forecast of a loss for the fiscal year concluding in February. To counterbalance this, Pick n Pay aims to generate as much as R4 billion from a forthcoming rights issue scheduled for mid-year, followed by the Boxer listing slated for the latter half of 2024.

With the Ackerman family at the helm as the controlling shareholders, their preliminary nod to this recovery blueprint must have been a formidable decision, given the implications. The family, which owns approximately 25% of the ordinary shares, is now at a financial crossroads: either they muster up around R1 billion or risk dilution of their holdings.

Boxer, a segment within the Pick n Pay fold, has exhibited remarkable growth, consistently outperforming its parent in terms of profitability. Pick n Pay's first half of the fiscal year recorded revenues of R34.6 billion within South Africa in contrast to Boxer's R17.4 billion—a testament to the subsidiary's robust performance. Speculations arise regarding Boxer's stand-alone value, whether it could potentially command a value of R4 billion or even more when solitary listed on the JSE.

The efficacy of Pick n Pay's CEO, Sean Summers, in orchestrating a turnaround is a pivotal aspect of maintaining stakeholder confidence. How the company aligns the forthcoming listing to achieve the highest possible valuation for Boxer remains a central component of its strategic financial recovery.

However, it's evident from the company's communicative tone and use of language that the decision to list Boxer doesn't seem entirely voluntary—it appears more like a reaction to mounting fiscal pressures. The aim to raise R4 billion through a rights issue represents a ceiling of financial capability. Questions linger over whether the Ackerman family will match their share of this rights issue, and if other institutional investors, such as Allan Gray and the Public Investment Corporation, will participate, especially under the current dual-class share setup where the family retains control.

The effort to list Boxer seems framed as part of an overarching strategy to "unlock value" for shareholders—a narrative that has become conspicuous in its recent communication. This tactic closely mirrors that of Transaction Capital's positioning regarding the listing of WeBuyCars. It signals a way to generate liquidity in a challenging economic climate marked by rising interest rates, thus avoiding a distress sale.

The forthcoming months will play a critical role for Pick n Pay and its stakeholders. Investors and market observers will be watching closely to see if the listing of Boxer on the JSE can indeed create the 'unlocking of value' expected by the company and whether this will be a pivotal moment for the retailer's financial restoration.