PPR in talks to sell Conforama in $1.6 billion deal

By Helen Massy-Beresford and Tiisetso Motsoeneng

PARIS/JOHANNESBURG (BestGrowthStock) – PPR (PRTP.PA: ) is in exclusive talks to sell its Conforama furniture unit to South African group Steinhoff (SHFJ.J: ) in a $1.6 billion deal that helps the French company focus on sport, lifestyle and luxury.

The cash-and-shares deal will give furniture maker and retailer Steinhoff a larger presence in France, Europe’s second-biggest economy and one of the largest markets for household goods on the continent.

PPR, the French luxury and retail group led by Francois-Henri Pinault, said the deal valued Conforama at 1.2 billion euros ($1.6 billion) in cash, while the working capital balance Conforama was due to pay PPR would be repaid on closing.

This puts the total value of the deal for PPR at around 1.6 billion euros, a source familiar with the matter said.

PPR has been looking for buyers for Conforama for about three years and has said it plans to return to the acquisition trail once it has disposed of its retail business. It wants to build a sports and lifestyle unit around Puma (PUMG.DE: ), the German brand in which it owns 71 percent.

Analysts from JPMorgan Cazenove said PPR could target Quiksilver (ZQK.N: ), the maker of surfing and skateboarding clothing, for its next acquisition, sending shares of the company sharply higher in New York.

“Burberry is “too big a fish’ for PPR in our view. We think Quiksilver could be of interest to PPR as a market leader in the lifestyle space focused on surfing, skateboarding and snowboarding.”

Shares of Quiksilver jumped 12.7 percent to $5.2 as of 1623 GMT.

Shares of Steinhoff rose more than 4 percent, with one analyst saying the deal would give the South African company more muscle abroad.

“It’s a sensible deal in that it gives them a penetration into Europe’s second-largest economy,” Roger Tejwani, an analyst at Johannesburg-based Credit Suisse Standard Securities.

“Steinhoff already has a wholesale business in Europe and this deal could probably help them sweat their supply chain a bit more.”

PPR shares were down almost 1.7 percent at 1646 GMT, against a 0.7 percent firmer French blue-chip CAC-40 index (.FCHI: ).

GUCCI, LOFT AND LAMPS

PPR, whose Gucci Group accounts for the bulk of its valuation, also wants to sell its Fnac electronics, books, CD and DVD unit, as well as its Redcats catalog business.

Conforama, which PPR bought in 1991, sells furniture including the 790-euro white “Loft” sofa, household appliances and decorative objects such as the 38-euro “Leny” desk lamp. It has around 180 stores in France, which account for 70 percent of revenue.

“Conforama was in pole position in the disposals timetable. The sale of Fnac is handicapped by the weak valuations of high tech product brands and cultural products and that of Redcats requires splitting its businesses,” CM-CIC analysts said in a note.

After a tough 2009, Conforama, which employs 12,000 people in Europe, posted sales of 2.2 billion euros, up 4.8 percent on a comparable basis, in the first nine months of 2010.

Conforama has been losing market share to IKEA (IKEA.UL: ) for a decade and the Swedish group is now the top furniture retailer in France.

The deal should be concluded in the coming weeks, after which it would be submitted to Steinhoff’s shareholders at a general assembly and then competition authorities, PPR said.

PPR Finance Director Jean-Francois Palus told a conference call the transaction should be completed by around March.

PPR said Steinhoff shareholders owning more than 50 percent had already undertaken to vote in favor of the deal.

Steinhoff, which is also looking to expand in Africa, is backed with a 600 million euro acquisition facility from a syndicate of six banks.

($1=.7520 Euro)

(Additional reporting by Pascale Denis and James Regan; Editing by David Cowell)

PPR in talks to sell Conforama in $1.6 billion deal