South African group Steinhoff will swap several of its industrial units for a bigger stake in Kap International, in a $1.1 billion deal giving it control of the manufacturing firm.
The deal will help the Johannesburg-based furniture company in its aim to create, and eventually list, separate businesses focused on Europe, emerging markets, and manufacturing.
With a market value of around $5 billion, Steinhoff sells furniture in Britain under the Harveys and Sleepmasters brands and in Europe under the Conforama brand.
Kap, a holding company with investments in leather, fibres and resins, was already 34 percent owned by Steinhoff.
Kap will issue 4.75 billion rand in new shares to Steinhoff in exchange for its supply chain business, as well as sawn timber and raw materials units, the companies said. Kap will also pay down 4.1 billion rand of Steinhoff debt.
The transaction gives Kap the size and the scope to command its own following on the JSE, Nedgroup Securities analyst Syd Vianello said. And the valuation all round is fair. I do not believe anyone is being taken for a ride in terms of overvaluation.
The issue price of 2.50 rand per Kap share represented a 14 percent premium to its closing price of 2.20 rand on Monday.
Kap shares closed up 10 percent at 2.42 rand on Tuesday, the top gainer on Johannesburg's all-share index.
The transaction will lift Steinhoff's stake in Kap to 88 percent, meaning it will likely have to make an offer to remaining shareholders under Johannesburg exchange rules.
Such an offer would lead to the delisting of Kap. Steinhoff said, however, it could swap shares in Kap for those in another group company, JD Group and keep Kap listed.
Steinhoff said that transaction would likely give it a controlling stake in JD Group, from around 30 percent now.
Steinhoff's next step will probably be the listing of its European business, which includes French firm Conforama, said Vianello.
Steinhoff said last month it would eventually look to list its European operations.
Its shares fell 0.8 percent to 22.41 rand, while JD Group added 0.8 percent to 40.09 rand.
Standard Bank and Investec advised on the deal.