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Steinhoff kicks off settlement proceedings

Sells R7.3 billion in Pepkor shares, which saw the latter’s share price drop 10%.
Steinhoff has essentially used about a third of its original stake in Pepkor to settle legal claims, with many claims still outstanding. Image: Waldo Swiegers/Bloomberg

Steinhoff has sold a tranche of Pepkor shares to the value of R7.3 billion, to settle legal claims against the group and buy indemnity from prosecution for members of management who might have been involved in South Africa’s biggest accounting fraud yet.

The sale of the latest tranche of Pepkor shares effectively reduces Steinhoff’s interest in Pepkor to 50.1%, from the 70% it held when Steinhoff listed Pepkor in a move that was generally seen as an attempt to safeguard Pepkor from Steinhoff creditors.

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The transfer of Pepkor shares to claimants, or the placing of shares with investors on behalf of those who would not take shares from Steinhoff again, follows years of wrangling and legal action with claimants positioning themselves to either get preferential treatment, a few crumbs – or nothing.

Payday imminent … for some

Steinhoff announced on Tuesday that it has “placed” 370 million Pepkor shares effective September 17 to settle the strongest and most vocal of the claimants.

“Steinhoff is pleased to announce the successful completion of the placement of 370 million placing shares, raising total gross proceeds of R7.3 billion (€0.4 billion),” says the announcement.

“The placing shares were placed at a price of R19.75 per share, a 9% discount to the pre-launch closing share price of ordinary shares of no par value in Pepkor at market close on September 13, 2021.”

The 370 million shares amount to 9.9% of the total issued shares, with Steinhoff saying that the placement reduces its interest in Pepkor from 68.2% to 50.1%.

The placement comes with a sting in the tail.

The new owners will not be able to sell the shares for a period of six months from the date of receipt, to prevent the new owners from dumping the shares on the market immediately and driving Pepkor’s share price down.

“These shares will be subject to a 180-day lock-up commencing from the date of transfer, which is expected to coincide with the closing of the global settlement process,” advised an earlier communication from Steinhoff (on Tuesday, September 13) with regards to the share placement.

Steinhoff also committed not to sell any more Pepkor shares for the next 180 days.

In essence, Steinhoff has used about a third of its original interest in Pepkor to settle legal claims, with a lot of claims still outstanding.

Listen to Ryk van Niekerk’s interview with former Steinhoff chair Christo Wiese (or read the English-translation transcript here):

Pain for Pepkor

In reaction, Pepkor’s share price fell by more than 10% at the opening of trading, later recovering a bit of the losses to close the day nearly 8% lower at just above R20.

However, the realisation of a potential overhang of 370 million shares might be the least of Pepkor’s problems.

The elephant in the Pepkor boardroom is the brewing legal dispute with the previous owners of Tekkie Town.

The Tekkie Town vendors are continuing their fight to get Tekkie Town back from either Steinhoff, alleging that the purchase was paid for with shares that Steinhoff knew were worthless at the time.

Pepkor has won some of the legal skirmishes, and the Tekkie Town vendors have won others.

These legal fights were all quite small in comparison to the latest assault in which the Tekkie Town vendors won the legal right to apply for the liquidation of Steinhoff in SA, in an effort to pursue their rights.

There is a risk that Pepkor could lose Tekkie Town, an important asset and contributor to profit.

Tekkie Town has around 400 stores. Pepkor disclosed in its latest results that Tekkie Town is as popular as ever and continues to grow its market share.

Like-for-like sales increased by 13.5% in the speciality division during the six months to March 2021, compared with 6.9% for Pep Stores.

 

Listen to former Tekkie Town CEO Bernard Mostert’s being interviewed on SAfm Market Update with Moneyweb (or read the transcript here):

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COMMENTS   16

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Appreciate your articles.

However too many what if’s. Tekkie Town chose shares when they could have chosen cash. Their fault.

End of story. Nothing else needs to be discussed.

They chose shares on the assumption that Steinhoff wasn’t busy committing fraud. There’s may be such thing as “buyer beware” but there is also such thing as intent to defraud.

So you can start reversing deals when it doesn’t go your way?

I guess Shoprite should sue the Nigerian government due to not succeeding over there. Brait should sue virgin active gyms for the pandemic.

Business is a contact sport. YOU CANNOT reverse mergers and acquisitions when synergies dont materialize, your beach house in Monaco does not pan out.

Tekkie town did 4 weeks of due diligence I heard. 4 weeks! For your life’s work. JFC. Horrific!

They’re suing because the legal costs are at 65 million so they’re in debt personally.

Many shareholders bought into SNH under the same cloud of deception. Why should Tekkie Town shareholders get preferential treatment. Many were duped and I can’t see why some get to stand in the front of the line?

@triple – it is trite in our law that you can request restoration of the status quo and be placed in the position you were in prior to the transaction which was tainted by fraud.

and what about the term “misrepresentation”?? when i have to decide to buy or not to buy or for that matter to exchange shares whilst the “audited AFS” that is presented to me to make a decision to exchange shares or not, is a total, but total misrepresentation / f-up of what actually went on (6 years plus)in that company surely it must be a “misrepresentation” – the results: good shares exchanged for bad shares in a misrepresented “audited” company’s shares.

i still ask myself the question when it comes to the steinhoff circus: what on earth was the quality of work or purpose of the steinhoff group’s own internal auditors to date, if they could not smell a rotten rat for at least 6 consecutive financial years never even mind the external auditors?????

The same recipe was used in the Zephan/Bosman Visser/Highveld Co/Pickvest sage. Directors in the financial dept had their hands on the income figures which spilled over to the asset values which gave a too good to be true figure to draw capital from the market and a unsustainable yield was obtained with inflated figures.

All good points mad above and frustration makes sense.

I just don’t buy the tekkie town antics. Its unforgivable that Braam van Huyssteen (the founder), publicly endorsed markus jooste a mere month or so after the story broke in a public interview. That means that they both are skelms and got caught. He knows he has to stick with markus or markus will turn on him down the line.

It speaks to tekkie town guys’ character and I don’t believe believe that bought shares after the crash in the open market/or those that held shares and averaged down needs to lose 100% of their investment in a liquidation. We stuck by Steinhoff through this and although I’m totally fine if the group goes to zero due to high debt and unsustainable interest payments, I’m not okay with a multi millionaire founder getting two stabs at the big time since their first attempt failed.

Wiese is a shrewd businessman but he’s accepting an 83.33% haircut from his intitial settlement. He lost much more! Why did he accept? Because he said other businesses don’t need to suffer as a result. Tekkie town wants the group liquidated and then will they be responsible for employing people at their stores?

No they can’t.

The Tekkie Towners are offered 2% in the settlement. The ex Chairman 20% and a cosy R10b loan with no interest that he must repay when he is 90. Do your math or your research. Maybe both. If you do it well you find that one of the execs calling all the shots were Jooste’s personal lawyer for more than a decade … honestly think he is going to lift the lid?

The outcome of all this depends on who the buyer of Steinhoff holdings in Pepkor shares is.
It’s going to be interesting to see the final outcome and definitely worth a punt on Pepkor at this price. Whomever the buyers are will want to a)protect their investment and b) expect a return ( even if it is in the long term!)
Time will tell.

My guess is it is the man himself, mr. Wiese – I for one would like seeing him getting some back into his old company

It might be useful for the Minister of Justice to release a price list for indemnification from prosecution. Just so us plebs know what we can afford to get away with.

Of course, I have a car it’s worth 1000 buck’s and a guy coming along and tell me: “hey, I give you 3000 for your car but I will pay in shares of my company, and you can’t sell it for the next several years. ” Wat will I do? I check the guy out and find article in internet, that this guy’s company has maybe fraudulent activity. So, what I’m doing know? Let me pay only in cash for the normal price or I’m being greedy and take the risk?
And everbody who is thinking Mostert fight for justice or small people has totally forgot who Mostert is, he is a multi million guy and part of the game.

except they aren’t playing gumtree.

Steinhoff; “The PWC report is privileged”
Steinhoff; “Some claimants have no claim. Oh wait they will vote for us if we throw them a Billion rand bone”
Steinhoff; “We are funding an investigation into ourselves and giving the NPA R30m”
Steinhoff; “These things are complex and take time. Give us four years”
Steinhoff; “We cant reveal the identity of our creditors. It may embarrass them”
Steinhoff; “Dear Constitutional Court. This is URGENT. We can circumvent every rule of SA courts and you have to give in to us & must protect us from a liquidation hearing”
Just seems petulant & very unconstitutional.

The bottom line is that everyone was too greedy….including shareholders. If it seems too good to be true, then it is! The Steinhoff share price ( based on lies and omissions by the company and its auditors) shyrocked in such a short time on the back of positive sentiment – that should have been a warning. When the powers that be set out to feather their own nests,thats a warning in itself. Marcus Jooste’s etc lifestyle and spending was enough of a warning that shareholders ignored, choosing rather to be impressed and gullible. Just my opinion.

End of comments.

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