Absa buys Edcon’s card business for R10bn

BSA is to acquire the store-card business of Edcon for about R10bn under a long-term deal in which South Africa’s largest retail bank will manage the credit book of the unlisted retailer’s customers.

The transaction gives the bank an opportunity to expand its unsecured lending book.

Absa said on Wednesday the deal, which should close in the second half of this year, would allow it to provide retail credit to Edcon customers while offering other financial products to existing and new Edcon customers.

Absa will be responsible for the credit, fraud management, risk, finance, legal and compliance operations of the business, while Edcon will retain control over aspects such as sales and marketing, customer services and collections.

“This should ensure a simple and seamless customer experience,” Absa said in a statement. “Edcon and Absa will balance continued growth of the credit book with appropriate credit quality.”

According to Edcon, the transaction “represents an important component of Edcon’s strategic plan and will facilitate growth, both in South Africa and the rest of Africa, by allowing for a greater focus on core retail operations and providing a more efficient funding structure to grow credit sales”.

Absa said it would buy the business for a cash consideration equivalent to the net book value of the card portfolio receivables at the effective date of acquisition, which is expected to close during the second half of this year.

“Absa and Edcon expect the purchase price of the card portfolio to be approximately R10bn,” it said.

Edcon, which delisted from the JSE in 2007, on Wednesday reported a 9% rise in revenue to R27,3bn for the year to March 31, as consumer demand remained resilient.

The group, with a portfolio of 1167 stores, said retail sales rose 8,6% to R24,6bn, while average trading space increased 1,4% to 1,3-million square metres. Same-store sales grew 7,4% over the period.