Deacons CEO Muchiri Wahome with Woolworths South Africa regional trading manager Shaun Koop after they opened the Woolworths store at the Thika Road Mall. Photo/FILE
What you need to know:
The equity sale could see some major shareholders reap from their investment.
Some Deacons shareholders could sell part or all of their equity in the company.
It was not immediately clear what size of equity the current investors in are willing to cede to new partners, but the proposed transaction could be a game changer for the firm.
Fashion and household goods retailer Deacons is set to cede a significant stake to strategic investors as part of the company’s plans to inject fresh capital and introduce new brands.
The equity sale could see some major shareholders reap from their investment.
“The board … is in discussion with potential investors to partner with the group in introducing exciting new brands into the market,” Deacons said in a statement.
“Such a partnership will also allow the group to unlock the shareholders’ value.”
Some Deacons shareholders could sell part or all of their equity in the company.
The retailer’s earnings have come under pressure from loss of its flagship Westgate shopping mall last year, as well as the partial buy-back of its Woolworths franchise.
South Africa’s Woolworths last year took a 51 per cent stake of its Kenyan franchise and offered the remaining 49 per cent to Deacons, ending the previous arrangement where Deacons did not have to share earnings from the clothing brand.
Deacons received a compensation of Sh405.8 million in the transaction.
Mr Price, another franchise owner, is planning a similar joint venture with Deacons that could take away more than half of annual revenues the local firm used to earn from the two franchises.
Deacons founding shareholders also took a significant share dilution in 2010 when the firm raised Sh700 million by selling 11.2 million shares to the public to fund expansion.
Prior to the fundraising, Swedfund International Aktiebolag was listed as the single largest shareholder with a 19.45 per cent stake.
It was followed by Pinpoint Investment (12.06 per cent), Charles Gathuri (11.04 per cent), former CEO Diana Bird (11.03 per cent) and Kirimara Ltd (10.19 per cent).
Private equity firm Aureos East had a 7.05 per cent interest while current CEO Muchiri Wahome had a 3.97 per cent stake.
It was not immediately clear what size of equity the current investors in are willing to cede to new partners, but the proposed transaction could be a game changer for the firm.
It will mark the first time Deacons is owned directly by a multinational fashion brand owner.
Deacons has so far relied purely on a franchise model.
The company’s chief financial officer Joseph Sitati told the Business Daily that the targeted new equity investors are in the fashion industry, underlining the firm’s quest to expand its brands and retail network.
Westgate mall
“The prospective investors ... will be bringing more brands to Deacons,” said Mr Sitati.
They will add on to clothing brand Bossini, the latest franchise to be introduced by Deacons, which has also terminated Mr Price Home and Identity in several stores for unsatisfactory sales.
The Sh405.8 million that Deacons received from Woolworths in the joint venture deal helped it return to profitability in the year ended December, partly cushioning it from the heavy hit it took from loss of the lucrative Westgate shopping mall branch.
It reported a net profit of Sh178.5 million in the year, reversing the 2012 net loss of Sh38 million.
The retail chain’s sales increased 11.1 per cent to Sh1.7 billion, trailing a 32.3 per cent jump in expenses to Sh1 billion.
Deacons lost more than Sh100 million due to the closure of three stores at Nairobi’s Westgate mall following a terrorist attack on the property in September.
