Former Steinhoff Chairman Christo Wiese says the $1 billion* proposed settlement announced by Steinhoff on Monday “is a step in the right direction”. Wiese, who is the single largest claimant seeking recourse from the company said that when he issued summons against Steinhoff in April 2018 “I wrote a letter saying in my view the only sensible way forward for the company is reach a settlement with all creditors and claimants.”
Wiese’s endorsement followed that of Dutch shareholder association European Investors-VEB, which urged shareholders to support the proposal, aimed at bringing an end to a long-drawn out and extremely expensive legal battle. If implemented the proposed complex settlement will establish a precedent in South Africa by compensating shareholders (referred to as the ‘market purchase claimants’) for losses suffered as a result of a collapse in the value of their shares. If the deal is agreed, as proposed, Steinhoff shareholders will get €266 million (R5.16 billion).
While the proposal reflects remarkable progress by the Steinhoff board it is still far from final. Not only does the board have to secure agreement from a large number of claimants scattered across the globe, the group’s creditors must also sign off on the proposed settlement.
To be expected, given the complexity and the number of parties involved in the settlement, there are concerns; the most notable of which is that the $1 billion valuation is significantly inflated by the overstatement of the current value of Pepkor shares. The settlement plan is based on paying all claimants 50% in cash and 50% in Pepkor shares, which are valued at R15. Pepkor is currently trading at R10.50 and last traded at R15 in early March ahead of the Covid-19 lockdown. However the R15 valuation is underpinned by a net asset value of just over R16 a share.
Wiese may get R9bn
In absolute terms Wiese looks set to be the single largest beneficiary of the proposed deal with a possible total payment of around R9 billion. This compares with his claim of R59 billion and needs to be seen in the context of a R3.4 billion claim Steinhoff has for a loan made to Wiese’s Titan group in early 2018. In addition a large portion of any money paid to Wiese is subject to claims by Conservatorium, which is the legal successor to a group of financial institutions that extended a €1.6 billion loan to Wiese in 2016. In the press release issued on Monday, Steinhoff said payment on Wiese’s claims would be subject to a resolution between him and Conservatorium.
Wiese is one of three Steinhoff NV ‘contractual’ claimants dealt with in the proposed settlement. The other two are Lancaster 101, which is controlled by Jay Naidoo and the PIC, and Tekkie Town. Lancaster/PIC are set to get €15 million and Tekkie Town €6 million.
Other parties claiming against Steinhoff SA include former banker GT Ferreira who is expected to receive R421 million and the Le Toit trust, which is tagged to get R227 million.
The largest portion (R7.9 billion) of the proposed payment to Wiese is based on his claims against Steinhoff Investment Holdings Pty Limited and relates to his exchange of Pepkor shares for Steinhoff shares in 2014 before its primary listing was transferred from Johannesburg to Frankfurt.
Eye on the future
In a statement released on Monday VEB CEO Paul Koster said the proposal is in the best interest of all the parties involved. “It is a positive proposal for injured shareholders which shows Steinhoff’s commitment to resolve those issues in very challenging circumstances,” said Koster, adding that implementation of the proposal would allow Steinhoff to focus on the future, which would be in the best interests of the current Steinhoff shareholders. “European Investors-VEB recommends that all its partners, members and other constituents support the proposal and its implementation,” said Koster.
One analyst said that securing the necessary backing of the creditors might be the biggest challenge as it meant that the asset value backing their claims would be reduced by €1 billion. “They might prefer that Steinhoff takes its chances with prolonged legal action especially if they’re earning a good return on their lockup agreement,” said the analyst.
The proposed payment to shareholders was described by one lawyer as ‘surprising’ in the context of the recent High Court ruling, in which Judge David Unterhalter refused to certify a class action on the grounds that it would not be successful because South African common law does not provide for claims by shareholders.
*Erroneously first published as €1bn