Pick ‘n Pay, one of South Africa’s leading supermarket chains, owned and controlled by the billionaire Ackerman family, has announced a two-step recapitalization strategy. This move aims to enhance operational stability in response to challenges within its operating environment.
In a move aimed at tackling increasing debt and boosting immediate cash flow, Pick ‘n Pay announces plans for a rights issue to raise up to R4 billion ($210 million) and the listing of its discount grocery chain, Boxer.
The announcement follows a tough period for the company, facing a sluggish consumer environment, load-shedding costs, and increased competition. In October 2023, the Ackerman family-controlled retailer appointed Sean Summers, a Pick ‘n Pay veteran and former CEO from 1996 to 2007, to guide the company through these challenges.
Market Fallout: Pick ‘n Pay shares plummet 16 percent following recapitalization announcement
Under the two-step recapitalization plan, Pick ‘n Pay aims to raise up to $210 million through a rights issue, scheduled for mid-2024. Simultaneously, the supermarket giant plans to list its discount grocery chain, Boxer, by year-end while retaining a majority stake. The company has also issued a warning, anticipating a full-year headline loss.
Following the strategic announcement, Pick ‘n Pay shares on the Johannesburg Stock Exchange (JSE) dropped by more than 16 percent in today’s trading, leading to a decrease in the group’s market capitalization to R10.71 billion. This positions it as the 89th most valuable stock on the JSE. As of the report, the Ackerman family’s stake in the retailer is valued at R2.74 billion ($143 million).
As the controlling shareholder, the Ackerman family has expressed in-principle support for the proposed plan. Pick ‘n Pay stated, “The board believes that the two-step recapitalization plan is the best course of action to stabilize the group’s balance sheet, strengthen group liquidity, and provide adequate capital funding for long-term sustainable growth, but importantly to unlock shareholder value.”
Pick ‘n Pay’s debt management: Successful negotiations with lenders for covenant waivers and amendments
On its financial performance in recent years, Pick ‘n Pay attributes the surge in net debt to R7.2 billion ($376 million) as of Jan. 21, up from R3.8 billion ($200 million) on Aug. 27, to disappointing trade performance at core Pick n Pay supermarkets, increased inventory, and strategic investments.
To ensure compliance with long-term debt covenants, Pick ‘n Pay has approached key lenders under its long-term syndicated and bilateral loan facilities. Lenders have agreed to waive all covenants on the facilities as of Feb. 25, amending them for Aug. 31.
As Pick ‘n Pay charts this strategic course, the company aims to navigate current challenges, reinforce its financial position, and pave the way for sustainable growth in the dynamic South African retail landscape.
