Stein­hoff’s warn­ing signs were there for all to see

The Sunday Telegraph - Money & Business - - Business - Ben Mar­low Fol­low Ben on Twitter: @ben­jam­in­mar­low

The sud­den im­plo­sion of South African re­tail deal ma­chine Stein­hoff should pro­vide a cau­tion­ary tale to any ac­quis­i­tive ex­ec­u­tive. At­tempts to con­quer the world in a hurry al­most al­ways end spec­tac­u­larly badly but Stein­hoff ’s melt­down is among the worst in re­cent mem­ory. Com­par­isons with En­ron and Par­malat are dra­matic but may not prove far-fetched.

Hav­ing gate­crashed the UK high street in 2016 seem­ingly out of nowhere with a flurry of high-pro­file juiced-up takeovers, Stein­hoff is now locked in a des­per­ate bat­tle for sur­vival.

Ac­count­ing ir­reg­u­lar­i­ties have been ex­posed stretch­ing back to 2015, and pos­si­bly fur­ther, the com­pany’s share price has been oblit­er­ated, and it is now scram­bling to raise cash.

Hind­sight is a won­der­ful thing of course but its turbo-charged spend­ing spree, which saw it quickly launch bids worth nearly £3bn for three long-stand­ing con­stituents of the Lon­don Stock Ex­change should have rung im­me­di­ate alarm bells. Led by long-serv­ing Markus Joost, a big player in his home­land but rel­a­tively un­heard of over­seas, it tar­geted elec­tri­cal chain Darty, Ar­gos owner Home Re­tail Group and bud­get chain Pound­land in just a few months.

Mean­while, its largest share­holder Christo Wiese, an­other rich South African and long­stand­ing as­so­ciate of Joost, was en­gaged in a sim­i­lar dash to snap up UK re­tail as­sets, buy­ing New Look and Vir­gin Ac­tive through his in­vest­ment ve­hi­cle Brait. He too is now scram­bling to limit the fall­out dam­age.

The City is well-ac­cus­tomed to over­seas ty­coons armed with shop­ping lists of at­trac­tive UK names that they hope will boost their in­ter­na­tional stand­ing. In­deed the sim­i­lar­i­ties with the Ice­landic raiders that plun­dered the high street in the run-up to the fi­nan­cial cri­sis are strik­ing. Yet lessons of past car crashes were seem­ingly ig­nored and the City leapt straight on the gravy train. With­out debt, Stein­hoff ’s eye-wa­ter­ing ex­pan­sion would have been much harder to pull off but a gag­gle of Wall Street and Euro­pean banks en­sured it was in plen­ti­ful sup­ply.

In fair­ness, the com­pany re­lied on much wider sup­port. Share­hold­ers in­creas­ingly helped fund ac­qui­si­tions in the later years, bean-coun­ters at Deloitte signed off ac­counts around the world, which are now be­ing re­stated, and boards of tar­get firms were happy to jump into the arms of their South African ad­mir­ers. The list of those that joined the Stein­hoff party with­out a sec­ond thought is em­bar­rass­ingly long.

No one con­sid­ered why it was in such a hurry or the huge risks that come with rapid, debt­fu­elled ex­pan­sion. Nor did any­one point out that stitch­ing to­gether a rag­bag of brands around the world into a co­her­ent em­pire would be fraught with po­ten­tial dan­gers.

The com­pany ended up with over 200 sub­sidiaries in 30 coun­tries and even though in­vestors now ad­mit its bal­ance sheet be­came more and more dif­fi­cult to un­der­stand, they largely re­mained silent.

In­deed the clos­est any­one got to rais­ing the alarm was more than a decade ago when an­a­lysts at JP Mor­gan pushed Stein­hoff to ex­plain why its ac­counts lacked piv­otal in­for­ma­tion. But even they gave up even­tu­ally after fail­ing to get any clear an­swers. If only they’d pulled at the seams a lit­tle harder.

‘Lessons of past car crashes were ig­nored and the City leapt on the gravy train’

CEO pay de­bate too black and white

The fury over ex­ec­u­tive pay has scaled new heights with the pub­li­ca­tion of yet an­other report into the gap be­tween those at the very top and the rest of the work­force.

This time we’re told that a top chief ex­ec­u­tive had earned as much as the av­er­age UK worker by the end of last Thurs­day. It’s a highly eye­catch­ing statis­tic but it would be great to see the de­bate broad­ened out at some point. I’m no apol­o­gist for highly paid bosses – some are un­doubt­edly hugely over­paid – but most earn a lot less than your typ­i­cal hedge fund trader or pri­vate equity ex­ec­u­tive, and noth­ing com­pared to sports­men, ac­tors and many other pro­fes­sions.

They also over­see com­plex or­gan­i­sa­tions, em­ploy tens of thou­sands, and pay hun­dreds of mil­lions of pounds in cor­po­ra­tion taxes, which make up nearly a tenth of all tax re­ceipts.

It is time for some per­spec­tive in this lon­grun­ning de­bate, as well as some real pro­pos­als on how to ad­dress the sit­u­a­tion. The constant “fat cat” bash­ing does no one any favours.

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