In an extraordinary act of shareholder dissent, South African retail titan Mr Price Group is confronting a blistering public critique from one of its largest institutional investors over its proposed R9.6 billion acquisition of German discount retailer NKD. The asset management firm 36One, led by its outspoken co-founder Cy Jacobs, has issued a sharply worded open letter condemning the deal as a “strategic misstep” that jeopardises the company’s financial integrity and shareholder value, igniting immediate turmoil among investors and casting a dark cloud over the retailer’s ambitious expansion plans.
The letter, addressed directly to the Mr Price board and widely circulated within financial circles, articulates a trenchant, point-by-point rebuttal of the logic behind the acquisition—the largest in Mr Price’s history. Jacobs leaves little room for ambiguity, framing the move to purchase NKD’s 2,100-store network across Germany, Austria, and Slovenia as a “radical departure” from the company’s historically disciplined, cash-generative, and Africa-focused business model.
“We are deeply alarmed by the strategic and financial implications of this transaction,” Jacobs wrote. “Management is proposing to spend nearly a decade’s worth of retained earnings, plus significant new debt, on a business operating in a ferociously competitive, low-growth European discount segment dominated by entrenched giants. The valuation appears disconnected from the underlying realities of NKD’s performance and the substantial execution risks involved.”
The critique homes in on several explosive concerns:
1. Questionable Strategic Fit: Jacobs challenges the core synergy argument, noting that Mr Price’s expertise in value fashion and homeware in emerging markets bears little resemblance to managing a low-margin, fast-moving consumer goods (FMCG) discount chain in a saturated, developed European economy. He warns of a “dangerous dilution” of management focus and brand identity.
2. Excessive Valuation and Financial Risk: The R9.6 billion price tag, funded through R3.5 billion of cash reserves and R6.1 billion in new debt, is labelled as “excessive.” 36One argues it ignores NKD’s modest growth trajectory and will dramatically alter Mr Price’s famously robust balance sheet, transforming it from a net-cash company to one laden with debt, thereby reducing its resilience against South Africa’s own economic volatility.
3. Governance and Communication Failures: The letter implies a breakdown in communication between the board and major shareholders, suggesting the rationale was not adequately socialised or justified before the announcement. This has sparked concerns about whether the board exercised sufficient scepticism during its due diligence.
The market’s reaction was swift and punitive. Following the letter’s release, Mr Price’s share price tumbled, reflecting a crisis of confidence. Other institutional shareholders and influential analysts have begun echoing 36One’s scepticism, with some questioning whether the deal violates the company’s own capital allocation principles, which historically prioritised high-return organic growth and share buybacks.
In a terse response, Mr Price Group acknowledged 36One’s concerns and reiterated its confidence in the acquisition’s long-term strategic value. “The board and management undertook a rigorous and exhaustive process over many months. We believe NKD provides a unique platform for disciplined international growth and diversification,” a company spokesperson stated, adding that they would engage with all shareholders ahead of the required vote.
The confrontation sets the stage for a high-stakes corporate governance battle. 36One’s public salvo is not merely criticism; it is a rallying cry for other investors to scrutinise and potentially vote down the deal at the forthcoming shareholder meeting. The outcome will serve as a decisive referendum on the board’s strategy, test the limits of shareholder patience, and determine whether Mr Price can proceed with its contentious bid to become a transcontinental retailer or be forced to retreat and reconsider its ambitions.
About The Author
