Wiese's Steinhoff & Shoprite tie up could prove problematic

As the proposed merger between retail giants Shoprite and Steinhoff International continues to dominate company news headlines, the hesitancy of investors from both sides of the spectrum has driven quite a few to wonder if the sketchy details of a tabled deal would be advantageous in the interest of all parties.

The architect of this endeavour is none other than Christo Wiese, chairman and sizable shareholder in both entities whose wishes are to consolidate his investments into one company.

However he'll need to explain why the deal renders the move necessary and how it's going to add value to other shareholders besides himself, a feat that most analysts can't envisage to be compelling.

Although it can be said that Wiese has received the backing from another large shareholder in the Public Investment Corporation which bodes well for his chances of completing the deal.  

SHP SRH SNHE Steinhoff / Shoprite - Renewal of joint cautionary announcement https://t.co/Ab6lVnvXDK

— JSE_SENS (@JSE_SENS) January 31, 2017

A main criticism of the deal stems from the fact that Wiese is the chairman for both companies, a principal position in ensuring good corporate governance is undertaken to take into consideration the interest of all stakeholders involved throughout the business and not merely that of shareholders.

By implication, Wiese is bypassing a moral & ethical consideration in favour of self interest.

Suppose the deal were to be approved, the likelihood of a cutback on labour costs is tentatively high on a reasoning of eliminating job duplication in the quest to find synergies.

As the chairman of the board Wiese is ethically obliged to take care of the interests of all stakeholders including that of the companies labour force which means this situation could turn it's ugly head if trade unions decide to dig their heels in on the prospects of a strong case.  

The deal doesn't make sense and it certainly doesn't appeal to to all stakeholders involved in it and although to pass it through might not be a difficult task to do if backed by other larger shareholders, the ideal objective would to have everyone on board and create value for more than one person.