Coronation to take Steinhoff to court
• First local investor to take action as shareholder • VEB warns this could lead to bankruptcy
Coronation Fund Managers, one of the largest shareholders in Steinhoff when it announced “accounting irregularities” in December, will be taking legal action against the company.
Its statement follows last Thursday’s announcement that GT Ferreira and the vendors of Tekkie Town lodged demands with Steinhoff. They were prompted by former chairman Christo Wiese’s decision to serve summons on Steinhoff.
Coronation said that where possible it would also be taking action against any other parties that have been complicit in any wrongdoing.
It is the first South Africanbased investor to announce legal action as a shareholder.
“We are in the process of completing our legal due diligence on the various legal options available to us and have consulted extensively with international counsel in this regard,” Coronation spokeswoman Louise Pelser told Business Day on Friday.
“Once our legal due diligence is completed in the coming weeks we will be well placed to decide which course of legal action is likely to yield the best outcome for our clients.”
Coronation’s legal action will be distinct from that of Wiese, Ferreira and Tekkie Town, who are claiming that they sold something of value to Steinhoff on the basis of misleading financial information it provided.
A large chunk of Wiese’s claim relates to the sale of Pepkor in exchange for Steinhoff shares in 2015. Ferreira exchanged his PSG shares for Steinhoff shares and the vendors of Tekkie Town sold a chain of shoe stores.
The danger with aggressive legal action is that it could push Steinhoff towards liquidation.
Armand Kersten, head of European relations at Dutch shareholders’ association VEB, said that it would be “very undesirable” if the company went bankrupt. “No one stands to gain anything from that,” he said.
On Friday Steinhoff Africa Retail (Star) issued a statement clarifying that Tekkie Town’s claim was not against it and that Star was an independently listed company. Tekkie Town was acquired by Steinhoff in 2016
and sold to Star ahead of its listing in September 2017.
“Star has proactively obtained advice from senior counsel regarding the claim lodged against Steinhoff and believes the likelihood of this affecting Star is remote,” it said.
However, on Friday the Star share price closed 3.37% weaker at R18.36, indicating investors are nervous about the possible fallout from the legal action.
Warren Erfmann, former nonexecutive director of Tekkie Town, said that the 2016 transaction was done on fraudulent terms. “Steinhoff materially overstated their assets and materially understated their liabilities. We were misled during the acquisition process,” he said.
At the time analysts said that Steinhoff had substantially overpaid for Tekkie Town.
The Steinhoff share price was down 8% on Friday to close at R1.60 as investors contemplated the latest bad news.
Steinhoff informed shareholders on Thursday there were expected to be “material additional impairments of intangible and other assets” because of an overstatement of profits and the accounting treatment of related parties. The impairments were over and above the estimated €6bn hole identified in the nonSouth African asset base.
In its latest update Steinhoff said it had relied on the sale of assets to fund working capital, interest and professional advisers’ fees, but this was not sustainable. “It is imperative that a restructuring plan is agreed with stakeholders as soon as possible in order to provide a more stable trading environment for the group’s operation, its people, suppliers and service providers and to allow management more time to focus on and assist the underlying business.”
An analyst said the restructuring plan was likely to focus on relocating debt from the holding company down to the operating businesses such as Conforama and Mattress Firm, and persuading the group’s bankers to exchange some of their debt for equity in these businesses.
As the market value of the company plunges towards zero, the only hope for the South African shareholders who launched legal action is that the group’s asset base is divided between the South African assets, which have significant positive value, and the nonSouth African assets with substantial negative value.