Poundland reports an 83.7% drop in annual pre-tax profits despite increase in total sales
Poundland started in 1990 and now has just under 600 stores across the UK, Ireland and SpainGetty

Discount chain Poundland has agreed a £597m ($792m, €717m) takeover by South African retail group Steinhoff.

Steinhoff, which also owns furniture chain Harveys and Bensons for Beds in the UK, is paying 222p per share for the single-price retailer, a 13.3% premium to Poundland's closing share price yesterday.

Steinhoff made an informal approach for Poundland last month, but the offer was rebuffed on grounds of undervaluing the business.

Poundland, which runs just under 600 stores in the UK Ireland and Spain, has only just competed the integration of rival chain 99p Stores, which it bought for £55m last September.

The single-price retailer was launched in 1990 and floated on the stock market in 2014, but has seen profits slip due to intense competition from such rivals as B&M, Home Bargains and Bargain Buys.

Poundland chairman Darren Shapland said: "Steinhoff is a well-capitalised, international business with a clear and proven commitment to value retailing.

"They share our vision for the growth and expansion of Poundland and, as such, we believe they are a suitable and appropriate partner for our colleagues, our suppliers and stakeholders."

Steinhoff has made a number of failed tilts to buy European targets this year, which saw it miss out on the chance to acquire French retailer Darty and Argos-owner Home Retail Group in the UK.

Steinhoff has amassed a large position in Poundland over recent weeks and currently owns a 23.6% stake in the single-price chain.

Steinhoff chief executive Markus Jooste said: "Steinhoff is developing a fast-growing, price-led retail business across the UK and the rest of Europe. Poundland would be a complementary fit to this growth story."

Last month Poundland posted statutory full-year pre-tax profits that plunged by 84% to £5.9m, blaming "challenging" trading and integration costs. Shares in Poundland have fallen some 40% since the company floated two years ago.

Last year, South African billionaire Christo Wiese, Steinhoff's largest shareholder, acquired majority stakes in fitness group Virgin Active and fashion chain New Look.