KILLING STEINHOFF
In the dying moments of a smouldering three-hour shareholders meeting, called to vote on a plan to finally kill tormented retailer Steinhoff, German shareholder Nicholas Vosswinkel stood and spoke directly to CEO Louis du Preez: “You’ve done an amazing job in the past couple of years in the restructure of this company. But when this [plan] came out on December 15, this was more than a punch to the stomach, and I lost all the faith I had in you.”
Vosswinkel said he “just couldn’t believe” that Du Preez, who had displayed canny negotiating skills (he settled R184bn of legal claims, stemming from SA’s largest fraud, for R24bn), had put a deal so extortionately unfair to shareholders on the table.
He’s not the only one feeling betrayed.
The story is that two weeks before Christmas, Du Preez told shareholders Steinhoff had run out of road. There’s no way it’ll be able to repay €10.3bn in debt due by June, so Steinhoff will default and the creditors (read: the hedge funds that took over Steinhoff’s debt at a bargain-basement price after South Africa’s largest fraud was uncovered in 2017) will take the assets.
The only deal Du Preez could negotiate was one in which the creditors take over the company, and shareholders get 20% “rights” in an unlisted company which may, fingers crossed, be worth something later.
It was Hobson’s choice: vote to hand all Steinhoff’s assets to the hedge funds in exchange for a theoretical upside, or lose everything anyway.
Vosswinkel said the hedge funds have made a killing, and are now choking shareholders. “If these guys are not in a position to make a little damage payment for shareholders who have been holding the shares before December 15, I wish them real hell,” he said. Better that Steinhoff folds, he said, than to vote for this. So in a twist fitting of the Steinhoff intrigue, shareholders voted against every single resolution, with 61.4% voting against Du Preez’s deal itself — torpedoing the plan.
It’s the sort of bloody nose you never see at an AGM — especially at a company which confounded expectations by lasting five years longer than anyone expected, after the fraud was discovered.
That it has is to Du Preez’s credit. As he told Vosswinkel: “You wake up in the morning, and there’s no-one who wishes you well — everyone wants to fight with you, and today is no different.”
This deal, he said, is the best he could get. “The hedge funds aren’t people sitting around a table drinking a cup of tea. These are robust, difficult negotiations — no inch is given,” he said.
In return, shareholders told the hedge funds exactly where to stick it. Which means the Amsterdam-headquartered Steinhoff is now likely to go into a Dutch “business rescue” process called WHOA, designed to avoid bankruptcy.
So how did Steinhoff shareholders get it together to give the hedge funds the middle finger?
The answer lies with a 64-year-old German nonprofit called Schutzgemeinschaft der Kapitalanleger (SdK), whose mission is the “protection of minority shareholders”.
SdK board member Marc Liebscher wrangled 23% of Steinhoff’s shareholders and got their proxy votes. Fewer than half of Steinhoff’s shareholders pitched up at the AGM, so those proxies accounted for 60% of the votes present. Liebscher told Du Preez at the AGM that his organisation will do all it can to “prevent this robbery”, adding: “Our war chest for lawyers is filled to the brim.”
Speaking to the FM afterwards, Liebscher says: “Perhaps if the assets were worth less than the debt, then you could hand it to the creditors. But we don’t believe this is the situation”.
Liebscher wrote to Du Preez with three alternatives. First, to go into a process overseen by shareholders and creditors to sell Steinhoff’s assets. “If we’re right, and the assets are worth more than the liabilities, shareholders will get something,” he says. Second, ask shareholders to put more money in, and ask the creditors to take a haircut on what they’re owed, leaving a functional company which isn’t destroyed in a fire-sale liquidation. Or third, go ahead with the restructuring, but pay a settlement to shareholders. “Since the AGM we haven’t heard back from them,” he says.
Yet Jean Pierre Verster, founder of Protea Capital Management, says SdK is selling false hope Steinhoff is finished.
“Steinhoff’s assets are largely listed companies, so it’s relatively easy to work out what they’re worth. In the best case, the debt of €10.3bn exceeds their assets by nearly €3bn. There’s no magic drawer somewhere that everyone at Steinhoff has forgotten about where you’ll suddenly find this money,” he says.
He calculates that Steinhoff’s 44% of Pepkor is worth €1.4bn, its 72% of Pepco is worth €3.7bn, Mattress Firm is worth, at best, €2bn, and Greenlit Brands is worth maybe €600m adding up to less than €8bn.
Says Verster: “Louis can go back and ask the vulture lenders for concessions, but there’s no way they’ll say: ‘Ag shame, here, take 10% off what you owe.’ So, on July 1, Steinhoff will in all probability default on its debt, and the lenders will take over the assets.” Liebscher says Verster’s valuation is wrong. “Steinhoff got a valuation by EY, but this was strikingly superficial. There were so many management estimates and caveats in there.”
So SdK has now embarked on a three-pronged attack: it will oppose Steinhoff’s bid to put the company in “business rescue”; it will ask the Dutch courts to order a “special audit” of Steinhoff to assess the true value; and it will fight Steinhoff’s restructuring in the German courts.
Says Liebscher: “We began fighting Wirecard in 2007 more than a decade before it collapsed so we’re not scared of a fight. Last week we gave Du Preez’s team a bloody nose which they absolutely didn’t expect, but this is only the beginning.”
For those with a sentimental (or financial) attachment to the Steinhoff of a decade ago, which aimed to surpass Ikea as Europe’s largest furniture retailer, the notion of a Don Quixote sticking it to the hedge funds is alluring.
Still, success for SdK seems unlikely but then, Steinhoff has consistently confounded expectations. Either way, a tense final act worthy of the wider drama looms.