Steinhoff hopes that its higher offer to shareholders – by Steinhoff International Holdings (SIHPL), the former SA holding company of the Steinhoff businesses – will eventually lay to rest some of the legal claims that have been dragging on for years.
In one of a spate of announcements over the last few days, Steinhoff announced that it had increased its offer to the so-called market purchase claimants by R3.2 billion after shareholders and bodies acting on behalf of shareholders did not accept previous offers. The market purchase claimants are investors who bought shares on the stock market just before it came to light that the companies financial reports were misleading.
The additional contribution will be allocated proportionately among SIHPL market claimants, according to the announcement. How much each shareholder will receive can only be determined later when it is clear how many shareholders have submitted claims.
According to the announcement: “Whilst Steinhoff has received positive responses to its 16 July offer, indications have been that it has attracted insufficient overall support to achieve certainty of outcome in the proposed SIHPL section 155 process.
“Recognising that the recent disputes focus on the proposed SIHPL settlement arrangements, Steinhoff has given consideration to whether a further and final increase to the SIHPL settlement offer can be made in order to achieve the necessary levels of support. “Therefore, Steinhoff now proposes that SIHPL make an additional contribution to the SIHPL market purchase claimants’ settlement consideration of R3.214 million.
“Steinhoff believes that the adjusted proposed settlement can resolve both legacy claims and, in SIHPL’s case, the more recent disputes.”
The higher offer has bought the support of Hamilton, one of the more aggressive groups of shareholders fighting for damages after shareholders lost billions when the share price crashed in 2017 following revelations of that there were vast differences in reported results and reality.
“Hamilton supports, in principle, the Steinhoff global settlement based on this increased contribution by SIHPL and will withdraw from the class composition application which has been adjourned until 13 August 2021 on that basis,” says Steinhoff.
“Hamilton’s final approval of the S155 proposal will be subject to the ongoing claim verification process.
“SIHPL confirms that it has received confirmation that four large Steinhoff financial creditors – funds managed or advised by The Baupost Group, LLC, Farallon Capital, Sculptor Capital Management and Silver Point Capital – are supportive of this further revision to the settlement term.”
Steinhoff hand forced
Ongoing legal challenges by Hamilton forced Steinhoff to come up with a better offer, with Steinhoff CEO Louis du Preez admitting that the group faced opposition resulting in legal proceedings relating to the particular terms of its earlier settlement proposal.
“The proposed additional contribution by SIHPL to the overall settlement is in response to those challenges. We still believe that a global settlement is in the interests of both SIHNV and SIHPL and indeed the entire group,” says Du Preez.
As before, he urged shareholders to vote in support of the scheme to solve the “legacy accounting issues” and let management focus on running the group and recovering some of the losses. In one of its earlier announcements, Steinhoff noted that settling the disputes is essential for the future of the Steinhoff group.
Steinhoff has called (virtual) meetings of the different groups of creditors and claimants to vote on the improved and final offer on September 6.
The settlement does not come close in addressing the losses. A summary of the new improved offer shows that the total amount offered to settle claims by financial creditors, market purchase claimants and contractual claimants has been increased to €1.426 billion, equal to R24.77 billion at the current exchange rate.
Investors suffered much larger losses. Depending on the starting point, Steinhoff shares crashed by as much as 90%. At its all-time high of R97 per share, the group was valued at nearly R418 billion.
The current share price of around R2 values the whole group at only R8.62 billion, a loss of more R408 billion.
Just before the financial wrongdoing came to light, Steinhoff was trading at R67 per share, which valued the group at R267.2 billion.
Using this as the starting point to calculate shareholders’ losses would yield a total loss of more than R258 billion.
At best, the settlement offer of R24.77 billion makes good less than 10% of the losses suffered by shareholders directly. Hopefully the managers of index tracker funds and similar products will file claims on behalf of their investors.
Claims ‘not entertained’
Some claims are not entertained under this offer and legal disputes are ongoing.
The latest settlement offer notes that a claim of more than R1 billion by the Mauritius-based Trevo Capital is excluded.
Steinhoff maintains that it disputes and will continue to dispute Trevo’s claim. It also says that the particular circumstances giving rise to Trevo’s claim cast doubt on the appropriateness of treating it as a market purchase claimant and thus reclassified the claim as a non-qualifying claimant for purposes of the settlement.
A dispute with the sellers of Tekkie Town is also ongoing, with the previous owners pursuing the liquidation of Steinhoff.
Reports that Steinhoff is starting to pursue claims against alleged wrongdoers indicates that shareholders cannot expect to recover much of their losses from this source.
Steinhoff filed a claim against Malcolm King, a British businessman and apparently a former business partner of former CEO Markus Jooste, according to a report by Opera News.
The report states that “Steinhoff group subsidiaries claim they have plenty of email evidence demonstrating how Jooste, King and others planned to fraudulently transfer money out of Steinhoff to firms owned by King”.
If successful, it will yield R1.66 billion at current exchange rates – a lot of money, but a drop in the ocean compared to the total losses that shareholders suffered.
The court cases will continue for years, with management warning in the latest results for the six months to March 2021 that legal advisory fees are expected to remain significant in the period ahead as we attempt to resolve the outstanding litigation and seek redress against former executives and related parties.