South Africa-based international retail holding company Steinhoff is considering a bid for discount retailer Poundland.
Following the revelation, Poundland shares initially rose 2.4% on Wednesday (15 June), but subsequently fell 0.51% at 1:13pm BST, after the company advised its shareholders to take no action as there was "no certainty" an offer would for it would be made by Steinhoff.
Steinhoff, which owns the furniture chain Harvey's, now has until 13 July to announce a firm intention to bid for Poundland under current market norms. Earlier this year, the South African company pulled out of a takeover battle with Sainsbury's for Home Retail Group.
At current valuation, Poundland, which has 600 shops in the UK, Ireland and Spain, is worth more than £500m. It took over rival 99p Stores in September 2015.
Harsha Wickremasinghe, associate at international M&A advisory firm Livingstone, felt Poundland has expanded rapidly to attract customers across the demographic spectrum. "However, it would seem Poundland has bitten off more than it can chew with its acquisition of rival 99p stores. The integration has been troublesome.
"Steinhoff has been stalking the UK high street for some time looking for a target. It has seized the opportunity and cannily struck when Poundland appears to be floundering. There is a significant market opportunity not only in the UK, but across Europe for it to capitalise on – and Steinhoff will not have missed this."
Poundland is due to publish its first quarter results and 2015 earnings on Thursday. In January, the retailer warned its annual profit will be at the lower end of expectations, as a decline in high street customers offset strong sales growth.