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Support for Steinhoff’s settlement offer, which aims to end litigation threatening its existence, has gained momentum after the majority of institutional investors and lenders voted in its favour on Monday.
Christo Wiese, a former chair of Steinhoff, said on Monday he would vote in favour of the proposal. Irish firm Hamilton, representing thousands of asset management firms, finalised its official support after Steinhoff agreed to pay its legal fees. They were joined later in the day by the Public Investment Corporation (PIC), which holds about 8.6% of the shares.
Steinhoff, the retailer at the centre of SA’s biggest fraud, faces more than 100 legal claims totalling more than R130bn by shareholders who maintain they were duped into buying a worthless stock through misleading information. The global retailer offered a settlement of €1.42bn (about R24bn) in August, up from €943m in July 2020, hoping to appease claimants and prevent court action that could force its liquidation.
Closing the chapter on litigation claims will allow Steinhoff to focus attention on its mountain of debt and its operations.
Steinhoff shocked the investment community by announcing "accounting irregularities" and the departure of Markus Jooste as CEO in 2017.
The resulting collapse in its shares left shareholders nursing a R200bn loss, with Wiese the biggest casualty. At the time, the PIC, whose biggest client is the Government Employees Pension Fund, was the second-largest shareholder.
While Steinhoff’s share price has more than doubled in the past month, signalling a degree of market optimism that its proposed global settlement offer will pass, the threat of liquidation has not disappeared.
Former owners of shoe retailer Tekkie Town, Bernard Mostert and Braam van Huysteen, oppose the settlement and won a small victory on Monday when a Cape Town judge ruled that lenders and the Dutch settlement administrators who were opposing their case could not intervene in their liquidation application. The judge also ruled that the case did not need to take place in the Netherlands.
Three classes of voters need to vote to approve the SA settlement. These are contractual claimants such as Wiese, who sold his company in exchange for Steinhoff shares; financial claimants such as banks; and market purchase claimants, which represent ordinary pension funds, institutional investors and shareholders.
The financial claimants and the market purchase claimants voted in digital meetings on Monday with both votes gaining a majority of more than 75%.
Wiese told Business Day on Monday that he would vote in favour of the settlement after a last-minute court action on Sunday. Steinhoff approached the high court to have his vote due on Monday delayed after he had apparently threatened to vote against the proposal.
Wiese said uncertainty had been cleared up at the weekend, though the settlement remains "hugely complicated".
Hamilton, a firm that funds legal cases and represented SA pension funds in court action against Steinhoff in SA and the Netherlands, will get its legal costs of €500,000 paid as part of the settlement, it was announced on Monday.
The PIC said it believes the proposed settlement is in the best interests of its clients, because of the cost of litigation and the prospect of weakening Steinhoff and diminishing the value of its shares.
Wiese said that to his knowledge, all contractual claimants are likely to vote in favour of the settlement on Thursday.
If approved, the settlement will mark a milestone in the retailer’s efforts to resolve its legal woes. If the proposal gets the go-ahead, it will then need to go to the Western Cape High Court for final approval. The Dutch vote on the settlement was postponed from Friday and will go ahead on Wednesday. It will then require court approval in the Netherlands.
Steinhoff promised claimants a payout of 50% cash and 50% Pepkor shares, which were valued at R15 when the settlement offer was first made. They have risen in value to more than R22 a share.
Steinhoff said on Monday it may offer cash instead of Pepkor shares. Steinhoff holds a 68% ownership stake in Pepkor, which includes brands such as Pep and Incredible Connection. Claimants who prefer half of their payout in Pepkor shares need to alert Steinhoff by Wednesday or they will be paid fully in cash.
By the JSE’s close Steinhoff’s shares had fallen the most since mid-March 2020, down 21.62% to R2.90, giving it a market cap of R12.382bn.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.