Steinhoff acknowledges a governance failure in Wiese transactions

Steinhoff’s commercial director, Louis du Preez, acknowledged to shareholders at the company’s AGM on Friday that there had been a governance failure in relation to two amounts paid to companies related to former chairman Christo Wiese last year.

The transactions related to Steinhoff Africa Retail’s (Star’s) proposed takeover of Shoprite that fell through after the accounting scandal hit in December last year.

“As part of this transaction a number of option agreements were entered into, including with Wiese-related entities,” Du Preez said. “The result of those was that the Wiese-related entities would obtain, in exchange for their shares in Shoprite, shares in Star.

“In October last year a forward sale agreement was entered into in terms of which €200 million was paid by Steinhoff Europe to a Wiese-related entity in respect of the Star shares that the Wiese-related entity would obtain post the Shoprite deal,” he explained. “A second payment of €125 million was made in November.”

Incredibly, Du Preez revealed that the agreement pertaining to the second payment was never put in writing. It was still being finalised at the time the payment was made, and subsequent to the collapse in Steinhoff’s share price, it was never completed.

“What has been established is that at both management board level and supervisory board level, governance and disclosure practices were not followed in respect of both transactions,” Du Preez said.

He added that regulators are now engaging with the group on these issues, and that Steinhoff is co-operating. Agreements have also been signed to ensure that the money is returned. The €125 million has already been paid back, and the second amount of €200 million is in the process of being repaid.

Wiese has defended his role in the transactions. Earlier this month he told Bloomberg that: “Given the parties involved from Steinhoff’s side, I accepted that the requisite internal approvals and governance matters in respect of the sale agreement and payments there were complied with.”

He also earlier told Moneyweb that: “In both cases I dealt with the management board of the company, and they approached the Sarb (South African Reserve Bank) when required and set the whole thing up. I believed that as a Dutch-domiciled company, Steinhoff’s management board had the authority to enter into these agreements and I thought this was normal procedure. There was nothing sinister about it. The procedures were, to the best of my knowledge, followed according to protocol. I had every reason to believe that the correct requisite internal approvals and governance matters in respect of the sale agreement and payments thereunder were complied with. So, I am not sure why the company has labelled the transactions as having not followed normal governance and disclosure processes.”

The acknowledgement from Steinhoff that there was a governance failure at both management and supervisory board level indicates an appreciation that the issues it has faced go beyond just accounting irregularities. Questions have to be asked about how these transactions were allowed to happen.

Who authorised the payment to the Wiese-related companies, and how could the second payment have been made with no agreement in place?

“I think it’s the first public admission that there were governance irregularities,” said Rob Lewenson, governance and engagement manager at Old Mutual Investment Group. “We’d be very interested to see if these are reported to the regulators and what the outcome of any investigations will show.”

He said this has provided a new angle to the scrutiny being placed on the company.

“Aside from all the accounting and other issues, we now have a governance issue,” Lewenson said. “It will be interesting to see how regulators and shareholders respond to that.”

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