DEAL VALUED AT R2.3BN
Steinhoff repurchased shares from its employee scheme
The repurchase was not a related party transaction and there was no need to make the disclosure
Steinhoff International repurchased 40.4-million shares from its employee share-participation scheme in a transaction valued at about R2.3bn just weeks before the December 2017 announcement about "accounting irregularities" wiped out most of the value of the shares.
The purchase of shares from a special purpose vehicle Steinhoff Sikhulasonke Investments, which was set up as an employee/black economic empowerment (BEE) initiative in 2008, was part of a 78.4-million share repurchase transaction undertaken by Steinhoff around October 24 2017. It cost about R4.7bn.
The substantial cash outlay took place just weeks after Steinhoff’s audit committee was alerted to potential problems by Deloitte. At a parliamentary hearing at the end of January 2018 audit committee chairman Steve Booysen said that in September the auditors raised questions with management regarding some entries in the group’s draft accounts.
On September 25 2017, the auditors addressed a letter to the audit committee chairman about these concerns, Booysen told Parliament.
Although it is not uncommon for companies to repurchase their shares, this appears to have been the first repurchase by Steinhoff since its listing in Frankfurt in 2015. Share repurchases can be used as a tool for capital management but can also be manipulated to support a share price or boost reported earnings per share.
A Sens statement issued by Steinhoff on October 24 refers to the purchase of 78.4-million shares but does not specify the date or the price at which the shares were repurchased.
It also does not disclose from whom the shares were purchased. However, for much of October Steinhoff was trading at around R60.
On Thursday, a Steinhoff spokesman confirmed that the 78.4-million shares repurchased in October included the 40.4-million held by Steinhoff Sikhulasonke. The BEE scheme was due to mature in December 2017. The JSE requires details of repurchases from related parties to be disclosed at the time of the repurchase.
However, Steinhoff said the Sikhulasonke repurchase "was not a related party transaction" and there was therefore no need to make the disclosure.
It added that further details would be disclosed in the group’s annual financial statements. Steinhoff’s contention that the repurchase is not a related party transaction appears to be at odds with a Sens statement it released in June 2016 disclosing details of the members of the Steinhoff voting pool party, which held a controlling 33% of Steinhoff. The list of members includes Sikhulasonke’s 40.4-million Steinhoff shares.
Steinhoff’s 2016 annual report says the scheme is structured so that about 12,000 employees will own Steinhoff shares after nine years. This week Steinhoff confirmed that employees were paid cash instead of receiving shares but would not say at what share price the payout was.
"The shares were bought back from the BEE trust at a market related price as negotiated with the independent trustees," said Steinhoff.
Assuming the BEE vehicle sold its shares at R60 a piece, the average payout would have been R2,000 an employee with black managers receiving above this average. Apart from the 40.4-million shares repurchased from Sikhula-sonke, Steinhoff said this week, "the remainder of the shares referred to in the Sens was purchased in the open market".
A comparison of Steinhoff’s July 2017 register of shareholders with that of its end-November 2017 register suggests a number of Steinhoff-related entities substantially reduced their holdings in that period. Trevo Capital, linked to former Pepkor CEO Pieter Erasmus, Upington Investment Holdings linked to Christo Wiese and Upington Mayfair linked to Markus Jooste reduced their holding by a combined 30-million shares.
It is impossible to tell if these deductions were matched by increases in other associated entities. There was no Sens disclosure of these trades.
This week Steinhoff said it was not aware of any share sales by the Upington entities. "Regarding Pieter Erasmus, the company will not know if he buys or sells shares as he is not a director of Steinhoff International Holdings NV."
The Financial Sector Conduct Authority (FCSA, previously the Financial Services Board), which supervises the JSE, told a parliamentary committee at the end of March that it had launched two investigations into possible insider trading in Steinhoff shares. One investigation focused on a foreign account that sold Steinhoff shares in August 2017.
"We are investigating whether unpublished price-sensitive inside information had crystallised before the selling transactions," the FSCA said.
The second insider-trading investigation "focuses on numerous trading accounts that sold Steinhoff shares from September 2017 to 5 December 2017", said the FSCA.
It said the trading accounts under investigation belonged to individuals, trusts and corporate entities.
"We are establishing if the trading accounts under investigation are related/linked to Steinhoff or any of its executives or Steinhoff related parties," said the FSCA.
When asked what progress had been made, Solly Keetse, head of the directorate for market abuse at the FSCA, told Business Day: "To date the FSCA has interrogated various witnesses and executives of Steinhoff and issued summonses for the interrogation of additional former and current Steinhoff executives and other key witnesses."