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Steinhoff rocked as accounting probe claims CEO

Dec 06 2017 20:30
John Bowker, Bloomberg News

Johannesburg - Steinhoff International Holdings plunged after its chief executive officer resigned amid accounting irregularities, rocking a company that’s rapidly expanded from its roots in South Africa into a retail empire spanning Australia, Europe and the US.

The owner of the France-based Conforama furniture chain, Mattress Firm in the US and Poundland in the UK, said late on Tuesday that CEO Markus Jooste quit as it appointed auditor PwC to probe the matter. The stock slumped as much as 72% on Wednesday in Frankfurt, wiping out more than €7bn ($8.3bn) in value.

The findings mark a striking turnabout for billionaire Chairperson Christo Wiese, South Africa’s fourth-richest man and Steinhoff’s biggest shareholder, who’s taking over the CEO role on an interim basis. Since he bought into the company in 2014, he’s accelerated an acquisition drive alongside long-term ally Jooste. 

In addition to purchases like the UK’s Bensons for Beds, the company has made plays for appliance chain Darty in France and household-goods retailer Argos in Britain.

As recently as November 3, Wiese bought 2 million Steinhoff shares at more than three times the price at which they were trading in Johannesburg on Wednesday. That deal alone has cost the chairperson R87.7m ($6.4m).

In October, Steinhoff bought back 78 million shares, a deal handled by Johannesburg-based PSG Capital. Jooste also resigned as a non-executive director of PSG.

Retail empire

“The trust between Wiese and Jooste is broken, that is why Jooste is out,” Syd Vianello, an independent retail analyst in Johannesburg, said by phone. “Wiese has got a huge amount of money at stake and it’s in his best interest to ensure trust in the company is restored.” 

Wiese, 76, and Jooste didn’t immediately respond to calls to their mobile phones. Wiese had a net worth of $4.3bn as of Tuesday, according to the Bloomberg Billionaires Index. He and Jooste, 56, both own properties in the scenic wine country around Cape Town, alongside other notable South African businessmen including Whitey Basson, who ran retailer Shoprite Holdings for 37 years until earlier this year.

Steinhoff shares traded 64% lower at €1.08 as of 16:02 in Frankfurt. The stock closed at €5.075 on its first day of trading in the German city in December 2015, when the company moved its primary listing from Johannesburg.

After the Pepkor deal, Wiese invested a further $1.8bn in Steinhoff in September 2016, partly financing the deal by pledging shares to Citigroup, Goldman Sachs Group, HSBC Holdings and Nomura International. With the security price now lower than the value of the loan from those lenders, he may be required to transfer more shares as collateral.

The turmoil has implications for Steinhoff Africa Retail, which was spun off from its parent in September, and Shoprite, in which Wiese is also the biggest shareholder. Steinhoff Africa slumped as much as 29% in Johannesburg, while Shoprite plunged as much as 6.3%, the biggest fall in almost a year. Steinhoff Africa said CEO Ben la Grange, who’s also chief financial officer of Steinhoff International, resigned.

KAP Industrial Holdings, in which Steinhoff is a major shareholder, fell the most in six months even as the firm said in a statement it is independently managed.

“I doubt Steinhoff will collapse,” Owen Nkomo, CEO of Johannesburg-based money manager Inkunzi Wealth Group, said by phone. “I would much rather take a chance and buy Steinhoff than Bitcoin.”

The retailer has indefinitely delayed the release of financial results, which had been scheduled for Wednesday, citing a criminal and tax investigation in Germany. That probe dates back to 2015, when German authorities raided the European headquarters in that country.

German probe

Prosecutors have said they’re looking into contracts valued in triple-digit millions of euros that appeared to have been conducted with third parties, but may have actually involved different units within the company.

The company said in August that “no evidence exists” that Steinhoff broke Germany’s commercial laws. It also said a report in Manager Magazin that Jooste is among employees being investigated by German prosecutors contained information that was “wrong or misleading”.

The company is involved in ongoing civil litigation - including with a former joint-venture partner - and the outcome “should result in monetary remedy to be paid by the group”, Steinhoff said in August.

Steinhoff International debt also plunged, with €800m of senior unsecured bonds due in 2025 falling as much as 41 cents on the euro, to 42 cents, according to data compiled by Bloomberg. The notes were issued in July and have a Baa3 investment-grade rating from Moody’s Investors Service.

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