Steinhoff’s Pepco Unit to Bypass London and List in Warsaw

Steinhoff International Holdings NV is listing its European retail arm Pepco Group in Poland, its largest market, in anticipation of increased demand for discount goods as consumers cope with the impact of the coronavirus crisis.

Pepco won’t receive any proceeds from the initial public offering, which will consist of existing shares held by Steinhoff and other holders, the company said in a statement Monday. A prospectus with details of the IPO will be published in the first half of May, it said.

The company runs discount retail chain Poundland in the U.K., which is its second-biggest market. Steinhoff’s choice to list Pepco in Poland, which hosts the largest number of its stores, means London will miss out on the IPO.

“Pepco was started in Poland; It’s our home, largest market and from a cash profit point it’s the most profitable market for us,” Chief Executive Officer Andy Bond said during a media call, adding that the move means “no disrespect to London, it’s simply our heart and soul and our home.”

Steinhoff’s Pepco Unit to Bypass London and List in Warsaw

Low-priced retailers have thrived over the past year, even with limited e-commerce, or none at all. The global recession triggered by the pandemic has pushed more purchases online, but also accelerated the generational shift toward frugality and discounters that began during the financial crisis more than a decade ago.

“Many people seem to think that the only place you can grow business is online,” Bond said, but Pepco sees it differently. “Proximity discount stores have grown and will continue to grow in the future,” he said.

The offering will consist of at least 15% of Pepco’s stock, and the company plans to implement a “cautious” dividend policy after floating. It aims to lift its earnings before interest, tax, depreciation and amortization to 1 billion euros ($1.2 billion) within five to seven years from 422.6 million euros reported for the financial year ended Sept. 30.

Pepco Group has more than 3,200 stores in 16 markets, according to its website. Its operations include the Pepco discount clothing and decor chain, which has a presence in fast-growing eastern European countries including Poland, Romania and Bulgaria. The company also runs Dealz outlets with food and cosmetics in Ireland, Spain and Poland. It recently expanded into Italy as part of its plan to reach more western European markets.

Spate of Listings

After a spate of listings by companies benefiting from the shift to virtual sales, including Polish postal locker firm InPost SA, and British online shopping emporium THG Plc in recent months, Pepco is one of the largest brick-and-mortar retailers to tap the European IPO market. For Wrsaw, it will add to e-commerce platform SA’s offering last year, as well as deals from several computer-game makers and biotechnology companies.

South African retailer Steinhoff, which was plunged into an accounting scandal in 2017, has been said to explore a sale or listing of the business for more than a year to raise funds for debt repayment. Pepco has received interest from buyout firms including Advent International and Partners Group Holding AG, Bloomberg News reported last year.

Steinhoff’s Pepco Unit to Bypass London and List in Warsaw

Bond, who also owns a personal stake in the company, was part of the team that revamped Asda’s operations in the years leading up to its 1999 sale to Walmart Inc. He rose through the ranks and eventually took the helm at the U.K. grocer after Walmart’s takeover.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. are global coordinators for Pepco’s IPO. Barclays Plc, BM PKO BP and Banco Santander SA are joint bookrunners; Pekao Investment Banking SA and Bank Polska Kasa Opieki SA - Biuro Maklerskie Pekao are co-bookrunners, while ING Bank NV and Trigon Dom Maklerski SA are co-lead managers.

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