LONDON (Reuters) - South African retailer Steinhoff (SNHG.DE) raised its agreed offer for Britain’s Poundland to 610 million pounds ($790 million) and said the revised terms were final, challenging investor Elliott Capital to back the deal or risk its collapse.
Poundland’s board had recommended an earlier 597-million-pound offer from Steinhoff, which holds 23.6 percent of the British discounter’s share capital, on July 13.
A day later activist U.S. hedge fund Elliott revealed it held 13.2 percent of the company, sending its shares higher on the expectation that Steinhoff would have to sweeten its bid. Elliott has since increased its Poundland holding to 17.5 percent, making it the company’s second largest investor.
“By offering Poundland shareholders an improved cash offer we aim to bring certainty to the transaction, recognizing the strength and value of the business,” Chief Executive Markus Jooste said in a statement on Thursday.
Elliott declined to comment.
The fund’s stake is potentially big enough to block the deal as Steinhoff requires the support of 75 percent of Poundland shareholders, not including its own holding, for the deal to go through.
But given that the revised offer has been agreed with Poundland’s board and Steinhoff maintains it is final, analysts expect the deal to proceed.
“We continue to believe this is a good offer for Poundland shareholders and comes at a time when there is more downside risk than upside. ... We would advise shareholders to accept the offer,” said analysts at brokerage Liberum.
Elliott, a $28-billion hedge fund founded by American billionaire Paul Singer, has a track record of buying stakes in companies in play and then getting bidders to increase their offers - a process which has been dubbed “bumpitrage”.
The firm was among investors that helped force Anheuser-Busch InBev (ABI.BR) to raise its $100-billion-plus bid for rival brewer SABMiller SAB.L last month.
The fund, which successfully helped lead international investors to seek repayment of Argentinian bonds, also compelled PulteGroup (PHM.N) to appoint new directors and built a 6 percent stake in Dragon Oil DRAGF.PK to push for a higher takeover offer.
“As one of the biggest activist campaigners out in the hedge fund industry, they have the ability to back their convictions very aggressively and patiently,” said Mohammad Hassan, head of hedge-fund analysis at Eurekahedge.
Steinhoff, which sells low-priced beds and cupboards in Europe, southern Africa and Asia and owns the Bensons Beds and Harvey’s furniture chains in Britain, is keen to grow its European business at a time when consumers are turning to cheaper chains and its home market is struggling.
It said it is now offering 227 pence in cash for each Poundland share, comprising an offer price of 225 pence and a final dividend of 2 pence.
The revised offer represents an increase of 5 pence per share over last month’s offer of 220 pence and the dividend.
Poundland, which as its name suggests sells every item in its UK stores for a pound, listed at 300 pence in 2014. Its shares have lost 37 percent of their value over the last year, hit by weak sales and the distraction of integrating the 99p Stores chain it bought for 55 million pounds.
On Thursday, its shares were unchanged at 221.75 pence.
“The 5 pence rise in the Steinhoff bid for Poundland is a pretty modest victory for shareholder activism,” said independent retail analyst Nick Bubb.
The Poundland deal should be third time lucky for Steinhoff after it failed to secure Britain’s Home Retail HOME.L, which owns Argos, and was unsuccessful in a bid for Darty DRTY.PA in France.
The company, whose largest shareholder is South African billionaire Christo Wiese, has a reputation for buying underperforming companies that can benefit from its wide global network to source goods at lower prices.
On Monday it purchased debt-laden Mattress Firm MFRM.O, the largest U.S. specialty bedding vendor.
Buying Poundland would give Steinhoff more than 900 shops in Britain, Ireland and Spain.
All other terms and conditions of its offer remain unchanged from last month’s deal.
Editing by Paul Sandle and Sonya Hepinstall