Pick n Pay Urged to Break Ackerman Control Amid Hunt for CEO

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Bloomberg - Feb 20th 2012, 09:09

Pick n Pay Stores Ltd.’s Ackerman family should loosen its hold over South Africa’s second-largest supermarket chain if a new chief executive officer is to ward off competition from Wal-Mart Stores Inc. (WMT), analysts and fund managers said. 

The Ackerman family controls Pick n Pay through its majority stake in Pick n Pay Holdings Ltd. Gareth Ackerman was appointed Pick n Pay chairman in March 2010, succeeding his father Raymond, 80, who founded the retailer in 1967 and listed it on the Johannesburg Stock Exchange a year later. The Cape Town-based company said Feb. 8 that Nick Badminton, 50, will quit after 32 years with the company, five of those as CEO.

“This structure isn’t working,” Syd Vianello, an analyst at Johannesburg-based Nedbank Group Ltd. (NED)’s securities unit, said in an interview yesterday. Vianello, who rates the stock a “sell,” tops return rankings for his recommendations on Pick n Pay and Clicks Group Ltd. (CLS), according to data compiled by Bloomberg. The new CEO will “have to be a person that can work with the family.”

Pick n Pay has lost market share to larger rival Shoprite Holdings Ltd. (SHP), while Massmart Holdings Ltd. (MSM) plans to start selling food after being bought by Bentonville, Arkansas-based Wal-Mart Stores last year. The stock has declined 4.7 percent over the past 12 months, compared with a 42 percent rally by Shoprite and Massmart’s 22 percent increase. The stock fell 1.1 percent to 43.19 rand as of the close in Johannesburg today, giving the company a market value of 20.7 billion rand ($2.7 billion).

Profit Decline

Annual net Income at Pick n Pay has dropped twice over the past five years to below 2008 levels while earnings at Shoprite have jumped more than fourfold since 2004. In the year through Feb. 2011, Pick n Pay paid out 75 percent of earnings in dividends while Shoprite paid out 50 percent of profit to shareholders for the year through June, according to Bloomberg calculations.

“Pick n Pay’s dividend policy has been unhealthy to the point where the company has struggled to fund normal growth,” Vianello said.

“There’s no plan at this stage to change the structure,” Gareth Ackerman said by phone on Feb. 13. Raymond Ackerman has said the company is run to the benefit of all shareholders and that his family’s long-term commitment to Pick n Pay has benefited the company.

The Public Investment Corp., the largest shareholder after the Ackermans with a 10.2 percent stake, is in talks with the grocer over corporate governance, PIC Chief Investment Officer Dan Matjila said in an e-mailed response to questions. There are no other shareholders with a stake above 2 percent in Pick n Pay Stores, according to data compiled by Bloomberg.

The Pretoria-based PIC, the largest single investor on the Johannesburg bourse, manages 1 trillion rand on behalf of the Government Employees Pension Fund.

Outsider Needed

Pick n Pay needs to find an outsider with international experience, said Evan Walker, a fund manager at Momentum Asset Management in Johannesburg. Momentum, with 180 billion rand in assets, owns Pick n Pay shares, according to data compiled by Bloomberg.

The CEO search will include internal and external candidates, both local and international, the company said in a statement on Feb 8. “We need someone who understands the change in global retailing,” said Gareth Ackerman, who will lead strategy until a replacement CEO is appointed.

“There is a risk that a new CEO may say the turnaround needs to take a different path,” said Theresa Heath, a retail analyst at Stanlib Asset Management, which has 341 billion rand in assets and owns Pick n Pay stock.

While Shoprite is also controlled through voting rights held by its chairman, Christo Wiese, the Cape town-based company differs from Pick n Pay in that Wiese has said he is not involved in daily operations.

African Expansion

Shoprite, with 1,520 stores, focused its expansion outside South Africa, and has 212 outlets in 15 other African countries, including Nigeria. Massmart has 26 stores in 11 other African nations. Pick n Pay, which last year sold its money losing Franklins supermarket chain in Australia, has 51 stores in Zimbabwe, three in Zambia, 17 in Namibia, 12 in Botswana, seven in Swaziland, one in Lesotho and two in Mauritius and Mozambique, according to its website.

“It is a combination of leadership issues that in the end makes the difference,” David Couldridge, a fund manager at Element Investment Managers in Cape Town, said by phone yesterday. Element, which has more than 20 billion rand in assets and doesn’t own shares in Pick n Pay.

The grocer’s management would’ve been more pro-active in arresting Pick n Pay’s underperformance had the Ackermans not had the “perpetual assurance” of retaining control, said Couldridge. A flat, more simple holding arrangement in which all shareholders have the same participation “would help focus minds on creating value.”