Australian discount grocer Franklins has been identified as a potential acquisition target, according to the country’s retail analysts.
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With takeover speculation rife in the Australian retail sector, analysts at Citigroup have earmarked the struggling Franklins as potential prey for would-be suitors.
Franklins, the Australian grocery unit of South African retailer Pick ‘n’ Pay, has struggled to maintain its market share in recent years.
However, the group’s parent company, Pick ‘n’ Pay, downplayed the likelihood of a sale.
Pick ‘n’ Pay insisted yesterday (23 April) that Franklin’s results for the fiscal year ended 28 February showed “a substantial improvement in overall profitability and general operational efficiencies”.
Losses still came in at A$8.8m (US$7.3m) but were down from $19m the previous year. The decreasing losses were a direct consequence of improved operational efficiencies, Pick ‘n Pay said.
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By GlobalDataAccording to Citigroup analyst Craig Woolford, the fact that Franklins is still losing money and market share makes it a prime takeover candidate.
“Franklins is one of the last major supermarket consolidation opportunities in the Australian market,” he wrote in a note to clients. “The most likely acquirer is Metcash, although Woolworths and Coles would like to cherry pick certain stores.” Other potential bidders include German discounter Aldi, which has operated in Australia since 2001.
Woolford estimated the business to be worth between $285-350m. Pick ‘n Pay acquired Franklins for $139m in 2001.
However, Franklins MD Aubrey Zelinsky reportedly told the APP that the chain is not for sale. “Everything in life has a price but as we are standing here today our business is not for sale,” he commented.
Indeed, Pick ‘n’ Pay’s investment strategy for Franklins, unveiled with the group’s results yesterday, suggests the South African company’s long-term commitment to the Australian retail sector.
“In order to capitalise and build on the current business platform, the board has committed to a significant capital investment programme in our corporate stores over the coming years,” Pick ‘n’ Pay said. “This additional investment in the Franklins business confirms the board’s commitment to growing our business in Australia.”
