When losing respect is a racing certainty
In the seven-page letter it sent to clients in January explaining why it was one of the largest investors in Steinhoff, Coronation Fund Managers referred to a long list of “highly respected business people” whose association with Steinhoff had given them comfort that the company was in good hands.
They added a second list, which contained the names of members of the supervisory board who were deemed to be strong and independent and appeared to take their fiduciary responsibilities very seriously.
The former list included Sean Summers, Andy Bond, Christo Wiese, Jannie Mouton and Louis van der Watt. On the latter list were Johan van Zyl, Steve Booysen, Theunie Lategan and Len Konar.
Missing from the lists of individuals who provided comfort were the names of key players Thys du Toit and GT Ferreira.
In June 2015, just ahead of the transfer of Steinhoff’s primary listing to Frankfurt, Du Toit had become a major investor in Steinhoff when he swopped more than R1bn of PSG shares for Steinhoff shares. At about the same time Ferreira emerged with a similar sized investment in Steinhoff after swopping his PSG shares.
The two transactions appear to have been part of Steinhoff’s acquisition of 17.1-million PSG shares in exchange for the issue of 45.4-million Steinhoff shares. The deal bumped up Steinhoff’s stake in PSG to a “significantly influential” 27%.
Although not mentioned, it’s difficult to imagine that Coronation was not influenced by the fact Ferreira and Du Toit were significant shareholders in Steinhoff. After all, Ferreira was a co-founder of the enormously successful FirstRand group and was actively involved in investments. Even more significant is that Du Toit was a founder of Coronation.
In an interview with Beeld newspaper, Ferreira explained that his Steinhoff investment, on which he and associated entities have lost around R1bn, traces all the way back to 2004 when he, Du Toit and three colleagues acquired 11% of KWV.
The five, referred to as the Group of Five, bought the shares from farmers in the hope of converting a stodgy and poorly managed operation into a listable drinks business.
That plan came to nought, but Ferreira and his four colleagues made a hefty profit when they offloaded the shares and subsequently emerged with shares in PSG.
Those PSG shares were swopped for shares in Dutchregistered Steinhoff just months ahead of its Frankfurt listing in 2015. Some of the KWV farmers who sold shares to Ferreira in 2004 for a relative pittance and looked on as the share traded at ever higher prices (on the overthe-counter facility provided by the company) regard the Steinhoff collapse as something akin to karma.
That one of SA’s most influential business networks had a major exposure to Steinhoff may help to explain why the furniture retailer was able to grow so quickly that its demise was almost inevitable.
Networks are frequently very effective in allocating capital. The network that operated around Stellenbosch was particularly effective; it included well-informed and experienced individuals who understood business.
Over a period of a decade or two they have made extremely valuable investments and, in the process, made large and small fortunes for their stakeholders.
But the familiarity that enables the easy movement of capital and information is also what dulls the sense of scepticism. Bumping into each one another around Stellenbosch and Hermanus, or sharing a passion for horse racing, may have helped to quiet any concerns about the almost doubling of shares in issue between 2015 and 2017.
And this familiarity may have encouraged a tolerance for massively overpaying for acquisitions, or for regularly changing reporting periods. By some accounts, the hefty premium paid for Tekkie Town was due to a shared interest in horses. Add to this familiarity a determination, at almost any cost, to diversify out of SA and you have key ingredients for a corporate meltdown.
Remarkably, given that PSG’s head office is situated in the centre of Stellenbosch and given that Steinhoff was a major shareholder in PSG, its fund management division was one of the few major institutional investors that actually sold Steinhoff shares ahead of the December collapse.
By early 2017 there was evidence the network was taking strain.
One of the PSG investment managers explained that the exit decision was based on concerns about the treatment of minority shareholders. He felt that major shareholder Wiese and Brait were benefiting too often at the expense of minorities. The explanation contained no reference to concerns about accounting practices; it was essentially about the divvying up of the spoils. Inevitably Steinhoff’s implosion has caused consternation in Stellenbosch and among the horse-racing fraternity.
Across the country it has made everyone a little more wary of “highly respected business people”.