Steinhoff’s warning signs were there for all to see
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.