If Steinhoff’s contractual claimants such as Christo Wiese-related entities and GT Ferreira were treated in the same manner as the thousands of shareholders who bought their shares in the market, Wiese’s proposed payout would be reduced from R7.9 billion to R1 billion and Ferreira’s from R421 million to R29 million, says a party acting on behalf of around 20% of Steinhoff’s shareholders.
Dublin-based Hamilton, which is managing a class action case on behalf of major institutional investors such as Ninety One, Allan Gray, Old Mutual, Coronation and Sanlam, has slammed the proposed settlement agreement as unfair and discriminatory.
In a letter sent to its Steinhoff clients last week, Hamilton said it is continuing to resist the settlement proposal and is also continuing its active litigation strategy in the Netherlands and South Africa.
Hamilton challenges Steinhoff’s rationale for dividing the claimants into market purchase claimants (MPCs), who comprise the vast majority of Steinhoff shareholders, and contractual claimants (CCs) such as the Wiese-related entities and former banker Ferreira.
Different treatment for different groups
Steinhoff then uses different mechanisms to calculate the two categories of claims in a manner that benefits the CCs and discriminates against the MPCs, says Hamilton. It notes that claims by Wiese’s Thibault “are recognised as being for 92% of the full purchase price of the shares and the claims of GT Ferreira and other contractual claimants are recognised at 94% of the full acquisition price”.
By contrast, instead of also being considered as a percentage of the full purchase price, all MPC claims are subjected to a so-called ‘inflation’ loss methodology says Hamilton.
It goes on to describe what must have been an immensely complex exercise.
“Under this method, economists briefed by Steinhoff have given an opinion of how much the share price was overvalued on each day between March 2009 and December 2017 as a result of Steinhoff’s misconduct. The claim value of MPCs is limited to this inflation amount. The inflation figure proposed by Steinhoff for each day ranges between 1% and 81% of the closing price on each day. On an average day, the inflation figure is only 40% of the closing share price.”
What this does to the figures
Hamilton says if the CCs’ claims had been subjected to the same process they would have been valued at a significantly smaller sum.
For example, Thibault’s claim (as a CC) was valued at R31.8 million; had it been valued in the same way as the MPCs it would have been reduced by 48% to R15.4 million.
Likewise Ferreira’s claim was valued at R1.1 billion but would have been reduced by 40% to R437.9 million if subjected to the ‘inflation’ loss methodology.
Yet more prejudice
The prejudice suffered by the MPCs doesn’t end with the ‘inflation’ loss methodology. Hamilton explains that the ‘recovery rates’ applied to the different claim values is also substantially lower for MPCs.
“Steinhoff applies a recovery rate of only 5% to Hamilton’s claims, compared to 18.7% for the Christo Wiese entities and 29.3% for the other contractual claims”.
The combined impact is that the proposed settlement will result in Wiese’s entities receiving 7.8 times more than they would if treated the same as the MPCs. Contractual claims by Ferreira and others are set to receive 14.7 times more than they would if subjected to the same treatment as the MPCs.
Steinhoff says its inflation loss methodology is a recognised basis of assessing the quantum of claims of class action securities claimants and allocating settlement consideration among them.
“Steinhoff considers it the appropriate approach to use here,” it says.
It defends the different basis of allocations between MPCs and CCs on the grounds that the CCs assert claims based on direct dealings with Steinhoff, which culminated in a contract for the acquisition of shares.
“Such claimants assert legal entitlements to rescind or cancel contracts on the alleged basis they were entered into on the basis of misrepresentations by Steinhoff’s representatives in pre-contractual negotiations and seek to claim back from Steinhoff the consideration paid for the shares,” says Steinhoff.
The methodology underpinning the CCs’ allocations reflects the legal nature of the CCs’ claims, it adds.
In addition, Steinhoff is relying on the high court judgment issued last year in the class action claim brought against the company by retired pensioner Anthea de Bruyn.
“The case shows that an absence of direct dealing with Steinhoff means there are higher legal hurdles for MPCs in establishing that SIHPL [Steinhoff International Holdings Proprietary Limited] owed them legal liability in respect of their share purchases,” says Steinhoff.
Fraud, not negligence
However in its letter Hamilton dismisses the De Bruyn precedent, stating: “This novel claim was run by a small personal injury law firm based in Johannesburg and it was based on a pleading of negligence.”
Hamilton adds that its claims have been brought on the same basis as a number of the contractual claimants, namely alleged fraud on the part of Steinhoff and Markus Jooste and other directors.
Other concerns raised by Hamilton in its letter include that Steinhoff takes no account of the fact that the CCs, unlike the MPCs, had the ability to undertake their own due diligence before acquiring their shares and that a claim brought by Wiese’s family “arises entirely from an alleged oral contract with Steinhoff’s then-CEO Markus Jooste”.
In addition Hamilton notes that as a member of the Steinhoff board since 2013 Wiese was better placed than nearly anyone to understand the true position of Steinhoff.
“To the extent that Thibault was misled by Steinhoff, this was the responsibility of the board and executives of Steinhoff, including Mr Wiese,” said Hamilton.
“It is difficult for a plaintiff to be compensated on the basis that it was misled by itself.”