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- By making a proposed settlement deal, Steinhoff is effectively inviting claimants to the poker table, says analyst David Shapiro.
- Steinhoff announced a settlement proposal to resolve about 90 separate multi-jurisdictional market purchase claims.
- The offer could result in up to about R5.1bn being paid in settlement of these market purchase claims.
By making a proposed settlement deal, Steinhoff International has taken its place at the poker table with those making claims against the company, in the view of deputy chair and analyst at Sasfin Securities, David Shapiro.
Steinhoff announced on Monday that it has developed a settlement proposal to resolve about 90 separate multi-jurisdictional market purchase claims against the company. The claims amount to billions of rand and stem from the plunge in the group's share price in the wake of an accounting scandal and subsequent sudden resignation of former CEO Markus Jooste in late 2017.
"Is it a bluff or not?" asks Shapiro. "The claimants will have to decide to take the deal or leave it and then wait and see what is left of the business."
If the proposed settlement proceeds, it will result in up to €266 million (about R5.1bn at current exchange rates) being paid in settlement of market purchase claims. It would also involve approximately €104 million (R2 billion at current exchange rates) being paid in settlement of claims of contractual counterparties against Steinhoff International Holdings N.V; and approximately R9.4 billion being paid in settlement of contractual counterparties against Steinhoff International Holdings Proprietary Limited.
The proposed deal seems to involve some cash payment as well as some payment by means of shares in Steinhoff subsidiary Pepkor.
"Pepkor is a fairly decent business fundamentally, despite the current difficult [Covid-19] times, which is not its fault," says Shapiro. That is why he thinks there is probably a good chance the proposal will be accepted.
He sees the proposed settlement as a "bold" move on the part of Steinhoff, which he thinks probably sees it as the only way to save the company, yet, there is still a lot of unknown detail about the offer.
"As long as these contingent liabilities are hanging over the company, no serious investor will come in," says Shapiro.
Early days
Simon Brown, founder and director of investment website JustOneLap.com, says it is early days regarding negotiations on the deal and what claimants will get in terms of a settlement proposal.
"On the surface...it looks to me like a decent proposal. Claimants will not get full payment and it will likely take six to twelve months to negotiate," says Brown.
He too points out that, at least the deal will allow Steinhoff to get rid of issues impacting whether it is worth investing in its shares. A claimant like businessman Christo Wiese, for instance sold off his Pepkor company for Steinhoff shares.
"Currently, investors considering the share just see these giant claims against the company in the background," says Brown. In his view, the settlement proposal is, therefore, quite clever. It offers Pepkor shares to claimants both in SA and in Europe.
"That is quite cunning. They simply don't have the cash [to pay the claims] but Pepkor is a nice share that investors might be interested in. If Steinhoff simply sells the Pepkor shares, the money will be stuck in SA and then it can't pay European claims. So, Steinhoff seems to propose that half of the settlement payment will be in cash and half in Pepkor shares. SA claimants will get Pepkor SA shares and in Europe claimants will get Pepkor Europe shares," explains Brown.
"Wiese will get Pepkor shares, so will get his original business back. It is not quite an unwinding process. Pepkor is a really good business and I think most of the claimants will accept the settlement proposal, but it will take some time to negotiate."
Nolwandle Mthombeni of Mergence Investment Management says that, she cannot say whether the proposed settlement will be accepted, as it's significantly less than the claims brought forward.
"That said, any acceptance of this amount will be positive as the litigation claims have been a dark cloud over the company. There are proposals, which include cash and Pepkor shares, to fund the settlement," she says.
Doubts
Former CEO of Tekkie Town Bernard Mostert says he doubts whether this proposal will settle lingering anxieties around Steinhoff's future.
The former Tekkie Town shareholders, in essence, exchanged all their shares in a claim against Tekkie Town for 43 million shares in Steinhoff, which had a value of about R3.3 billion at the time.
Shortly afterwards, the Steinhoff audit scandal broke, and the value of the company's shares plummeted, leading to the former Tekkie Town shareholders claiming they were misled by Steinhoff and its former CEO Markus Jooste at the time of negotiating the share swap deal in 2016.
"The rhetorical question is whether you can settle a number of unique legal challenges in a uniform matter. Whilst this may look like an elegant and simple solution, it is an impossibility. As for ourselves, we are not open to any settlement that involves Pepkor shares at a premium of 46% to market value," says Mostert.
"In the last two years only once did a Pepkor executive purchase shares in the open market. That is as clear cut an indication you will ever get that they have little faith in the company and do not work to increase shareholder value but rather for salaries and bonusses."
Mostert further points out that he and his fellow former Tekkie Town owners have an interdict over both Steinhoff and Pepkor pending their legal battle to get Tekkie Town back.
"The assets that fund Steinhoff are nearly all in dispute and that is why there is this litany of legal action," says Mostert.
