Mr Price is nearing the completion of its purchase of European retailer NKD despite investors sounding the alarm over the deal.

Mr Price announced its plan to acquire 100% of the shares of Pegasus Group Holding GmbH, which trades as NKD Group’s retail business, in December

The deal was valued at €487.00 million (around R9.6 billion at the time) and will be funded by a combination of cash and debt.

The retailer operates in Germany, Austria, Italy, Croatia, Slovenia, the Czech Republic, and Poland, with over 2,100 stores. The company generated net sales of €684.57 million in 2024.

“NKD has a clearly differentiated value positioning, targeting quality and price-conscious customers, with a predominantly private label range offering that serves the whole family and carries minimal fashion risk,” said Mr Price in December.

“NKD achieves sustainable profitability by operating smaller-format stores with an average store size of 300sqm.”

In an update to shareholders, Mr Price said that the deal has satisfied all regulatory conditions precedent.

The transaction has thus become unconditional, subject only to the condition precedent of the payment of the purchase consideration.

In terms of the transaction agreement, the scheduled closing date of the deal is 31 March 2026.

Mr Price will hold an investor presentation on the deal on 17 March to provide further insight into NKD
and its growth prospects. This comes amid uproar from investors over the deal.

Question marks over the deal

The immediate reaction to the deal was largely negative, with R6 billion wiped off Mr Price’s share price on the first day.

Prominent critics of the deal have included 36One Asset Management and Benguela Global Fund Managers.

Benguela said that the deal would result in the long-term destruction of shareholder value, given NKD’s comparatively weak financial position.

Benguela noted that the European retailer offers far lower margins, likely in the region of 1% to 2%, which is far below Mr Price’s typical margin between 9% to 14%.

It added that Mr Price’s return on equity (ROE) is 27%, which is far higher than NKD’s approximately 13%.

“Based on NKD’s 2024 profit after tax and the midpoint of Mr Price’s proposed acquisition consideration, the earnings yield or return on investment is 2.9%,” said Benguela.

“Acquiring a structurally low-return business at scale dilutes group returns, even before execution risk is considered.”

Beguala added that the deal would add R6 billion in debt to Mr Price’s balance sheet, with the interest charge of over R400 million per year likely to exceed any profit generated from NKD.

Benguela has also written to the JSE and the FSCA, looking to have the deal, as well as several other acquisitions, deemed category 1 transactions.

Category 1 transactions account for over 30% of a company’s market cap and need shareholder approval. The NKD transaction does not qualify as a Category 1 transaction by itself.

However, Bengeuela noted that Mr Price has acquired Studio 88, Yuppiechef, and Power Fashion since 2021.

It said that four transactions, totalling R17.6 billion, would add over 3,000 stores to the group’s network and should thus be jointly deemed a Category 1 transaction.