Abil gets more access to financial services and the retailer gets a fair deal

Lihle Z Mtshali

Lihle Z Mtshali

The National Credit Act (NCA) has emerged as the driving force behind the R9,85billion proposed acquisition of furniture retailer Ellerines by African Bank Investments (Abil).

Microlender Abil announced the offer for the furniture retailer on Monday evening and said Abil believed "the NCA would have a profound effect on the landscape of the credit markets in South Africa, particularly within the bank's target market".

Abil estimates that about 70 percent of Ellerines' profits are derived from its financial services activities. This would be enticing to the microlender, which would now be able to offer financial services on a broader spectrum.

The deal also fulfils Ellerines' desire to be more involved in the financial services sector.

Yesterday's trade saw the Ellerines stock soaring 23 percent, to R73,80 per share, after trading as high as R75 earlier that morning.

To finance the deal, Abil offers 255 new Abil ordinary shares for every 100 Ellerines shares held, which values the retailer at R85 a share. However, out of the R85 a share, shareholders would get only R81,80 as 3,75 percent was reserved for BEE shareholders, said Zimbini Vazi, a retail analyst at Macquarie First South Securities.

"It looks like a good offer and we should see the share price going up even higher as the deal is finalised," said Vazi.

The deal was not negative from an Ellerines perspective because Abil was offering fair value and was not trying to steal the company, but there was a concern as to how much incremental gain there would be for Abil, said Syd Vianello, a retail analyst at Nedcor Securities.

"My concern is that Ellerines has said the margins in the furniture business would be squeezed in the long-term and Abil might have to go through major pains in order to realise gains," he said.