EXCLUSIVE: Tekkie Town hauls Steinhoff to court
Former owners, engaged in fight with Steinhoff Africa Retail for a share of future Tekkie Town profits, are going to court
The former owners of Tekkie Town — led by founder Braam van Huyssteen and CEO Bernard Mostert — have filed court papers for claims relating to an "earn-out" scheme they say was agreed to by Steinhoff Africa Retail (Star).
An earn-out is a provision written into some transactions where the seller later gets an additional payment based on the performance of the business at that time.
Star bought Tekkie Town for R3.2bn in 2016, to be paid in shares, an acquisition Van Huyssteen now wants reversed. He recently resigned from his role as chair of Star’s property division.
Star has consistently denied that it agreed to an earn-out scheme. Reiterating that position this week, it said: "Star confirms that it is still of the view that it is not a party to any such earn-out agreement and Star further confirms that it has received advice from senior counsel that there is no reasonable prospects of it being held liable in this regard."
The scheme would entitle its beneficiaries — executives from Tekkie Town who were appointed to run Star’s speciality fashion & footwear division — to receive 20% of the increase in its earnings before interest, tax, depreciation and amortisation (Ebitda) over a three-year period.
The court papers include a copy of a document annotated by former Steinhoff CEO Markus Jooste in the presence of Van Huyssteen at the time of the deal, which appears to confirm that an earn-out was agreed to in principle.
Jooste’s handwritten calculation of the earn-out can be seen on the document and it appears to give credence to the assertion and basis on which the scheme would work.
"I shook hands with Jooste," says Van Huyssteen.
"We agreed on the deal and the terms of the earn-out and it was handed to the mergers and acquisitions team for execution."
So why was it never reduced to a written contract? The acquisition of Tekkie Town became effective in August 2016. Van Huyssteen says it is public record that Steinhoff then undertook a major restructuring of its businesses that ultimately led to the creation of Star and culminated in its listing on the JSE in September 2017, which delayed the implementation of the scheme.
"But there was also internal resistance from some of the hierarchy inside Star who did not want Tekkie Town executives, including myself and Bernard, to run the speciality division," says Van Huyssteen. This was finally resolved in October 2017 when — according to Van Huyssteen — Jooste, former Steinhoff CEO Ben la Grange and Christo Wiese (the largest shareholder of Steinhoff at the time) decided Van Huyssteen would become chair of the speciality division, and Mostert the CEO.
The court papers reveal how during October 2017 La Grange, who by then was also CEO of Star, wanted to amend the terms of the earn-out. He wanted to accommodate the year that had been lost due to the restructuring, and therefore wanted the term to run from 2017 to 2020.
La Grange also wanted the payment of the bonus to include the non-Tekkie Town executives of the speciality division.
It is expected that La Grange will be called to testify.
Van Huyssteen is adamant the earn-out was communicated to the rest of the speciality division, and believes the carrot this scheme represented is one of the main reasons that arm of the business has been performing so well.
For the six months ending March 2018, it achieved comparable sales growth of 17% and like-for-like sales growth of 10%.
"When you motivate the people in this way you get the results we have been delivering. That’s why I insisted on this scheme in the first place," says Van Huyssteen.
Star did not respond to the FM’s questions, but chair Jayendra Naidoo did issue a statement saying: "The so-called ‘earn-out’ is not a matter on which Star has entered into any contract whatsoever. Star will defend any claims which are made in respect of Tekkie Town."
It will be left to the court to decide whether the correspondence and engagements constitute a legally binding contract.
Star is expected to file responding papers shortly.