Pick n Pay share price takes a beating, but plunge ‘not unexpected’

By Georgina Crouth

18 Jul 2024

The retailer’s rights issue went live yesterday, causing the share price to plunge by more than 17%.

Pick n Pay’s (PnP’s) share price was still dusting off the caning it received yesterday, after losing more than 17% within an hour of when the retailer’s desperate R4-billion rights offer began.

Shares were still down 3.4% by noon on Thursday. The retailer’s share price has lost 40.1% of its value over the past year.

The group announced the rights offer in February, as part of a major recapitalisation plan aimed to correct its balance sheet issues, and set the price at a tempting discount of about 32.5% so shareholders could buy new shares at the rights offer price of R15.86.

A rights issue is a method of raising capital where a company offers its existing shareholders the opportunity to purchase additional shares at a discounted price.

Value of existing shares diluted

Shareholders receive “rights” entitling them to purchase new shares, proportional to their current holding. While shareholders can increase their stake at a reduced cost, the value of existing shares is diluted due to the increased number of shares.

In PnP’s case, the retailer was attempting to raise capital to right its precarious financial position and return to profitability.

Last week, on 11 July, it announced that it would proceed with the rights offer, after shareholders approved the move.

On 27 May, PnP declared a staggering R3.2-billion trading loss at a group level in the fiscal year ending February 2024, and an alarming increase in the debt-to-EBITDA ratio from 1.1 times (within the industry range) to 6.3 times.

Read more: The Finance Ghost: The market lowdown on property valuation changes and Pick n Pay’s slog

PnP’s board announced a raft of measures to stem the bleeding and will be recapitalising the business through the R4-billion rights offer, in which the founding Ackerman family would relinquish their majority stake in PnP.

Gareth Ackerman would step down as chairperson after 14 years in the position, and the Ackerman family followed their rights up to R1-billion towards the recapitalisation.

Three of the Ackermans — Gareth, Suzanne and Jonathan Ackerman – remain on the board but relinquished the right to nominate the chairperson, chief executive officer and chief financial officer.

Practically, the rights issue works as follows: if shareholders had held 100 shares valued at R28 each (total R2,800), they would receive 51 letters of allocation that would enable them to purchase 51 new shares at R15.86 each. Exercising these rights would result in owning 151 shares for a total investment of R3,600, equivalent to roughly R24 per share.

As a result, the share price had been expected to decline from R28 to R24, which PnP said aligned with yesterday’s market movement.

No direct loss

However, shareholders who chose not to exercise their rights did not incur a direct loss (of R4 per share) because the value resided in the letters of allocation, which granted them the right to purchase a Pick n Pay share at the discounted price of R15.86 compared with the new share price of R24. These letters of allocation were valued at R8.14 each (R24 less R15.86) and could be traded on the JSE, so selling 51 letters of allocation could yield around R400, which offsets the R4 decline in the share price for 100 shares.

A Pick n Pay spokesperson insisted that they were satisfied with the outcome: “We are pleased the Pick n Pay Rights Offer is on track and we look forward to its successful conclusion.” BM

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Value of existing shares diluted

No direct loss