Steinhoff: Another settlement, another paycheque

The settlement of another huge claim against Steinhoff International Holdings does little to improve the fate of shareholders. One could argue that settling a claim of more than €200 million is akin to an organ donor recipient grabbing a kidney from an accident victim who is still alive, if barely.

The group once again sold a tranche of Pepkor shares to raise money to settle a claim – this one from LSW GmbH and its principal, Andreas Seifert, related to the acquisition of the European Conforama furniture retail group.

Steinhoff announced on 8 February that it would dispose of 240 million Pepkor shares through a placement of shares with institutional investors.

The next day, it announced that it had sold 265 million Pepkor shares and raised R4.9 billion (approximately €257 million) due to strong demand for Pepkor shares. It sold the share at a discount of nearly 6%.

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The announcement said the settlement of the placing was expected to occur by 14 February and that the proceeds would in due course be “used to de-leverage Steinhoff’s capital structure”.

Within a few days of the money hitting the bank account, Steinhoff issued another Sens announcement to inform shareholders that a conditional agreement was reached with LSW for an amount of just more than €202 million, equal to more than R3.9 billion at the current exchange rate.

“On 20 February 2023 Steinhoff and certain LSW entities reached a full and final settlement of all outstanding litigation between the parties to be concluded before the Commercial Court of Vienna for total payment of €202.12 million. The settlement is subject to the fulfilment of certain conditions, including Steinhoff Group lender consent,” according to the announcement.

This prompted veteran retail analyst Syd Vianello to quip on Twitter:

“Now we know why SNH had to sell Pepkor shares – to procure money to settle Seifert’s litigation re original Conforama acquisition.”

Steinhoff said the litigation with LSW was previously disclosed in the company’s annual reports.

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A note in the annual report covering the year to September 2022 noted: “During the reporting period, Steinhoff and the Seifert entities continued with negotiations to settle the outstanding litigation between the parties, in which negotiations a settlement amount of €202.5 million was discussed.

“Considering these negotiations management decided to increase the settlement provision relating to Seifert by €102 million in the 2022 reporting period.”

Tekkie Town

This is not the first time Steinhoff raided its Pepkor piggy bank. This disposal of Pepkor shares to settle a claim is similar to the settlement of a claim by the founders of Tekkie Town.

The previous owners of Tekkie Town also forced a settlement out of Steinhoff after years of litigation for compensation on the basis that Steinhoff paid for the acquisition of Tekkie Town with shares it knew were “worthless”.

Years of campaigning “to get Tekkie Town back” culminated in a court application for the liquidation of Steinhoff. Steinhoff eventually gave in and settled the matter with R500 million cash and 29.5 million Pepkor shares at the end of December 2021.

ALSO READ: Unbelievable! Steinhoff falls to another new low

Pepkor shares were trading at R21.80 at the time, putting a value of R643 million on the parcel of shares for a total settlement of more than R1.1 billion.

Dwindling piggy bank …

The latest sale of Pepkor shares reduced Steinhoff’s interest in Pepkor from 51% prior to the placement to less than 44%.

Steinhoff held an interest of nearly 77% in Pepkor when Pepkor predecessor Steinhoff Africa Retail (Star) listed on the JSE in 2017, according to the prelisting statement.

Steinhoff also disposed of a big parcel of Pepco shares recently.

In January 2023, it announced that it raised more than €315 million (in excess of R5.8 billion) by selling off 38 million Pepco shares, also by placement with institutional investors and also at a big discount.

ALSO READ: Steinhoff crashes to a record low

This money was earmarked for settling debts and, presumably, to pay the operating costs of Steinhoff International Holdings itself, such as salaries.

Remuneration

Steinhoff’s remuneration report and the annual report disclosing the salaries of directors and senior managers makes for interesting reading.

Many of the 21 pages of the report are dedicated to justifying executive remuneration and measuring how executives have done what was required from them. Even more of the pages discuss the attempts to replace the existing share incentive scheme with cash payments.

Yes – management does not want Steinhoff shares either.

To date, shareholders have voted down every attempt to change the remuneration policy. The result is that management remuneration is based on a policy adopted in 2015, when things were still going well and there was a lot of money to be had in share options rather than in cash payments.

Despite the absence of share entitlements, Steinhoff managers aren’t doing badly while house sitting and coping with incoming letters of demand.

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CEO Louis du Preez was paid a basic salary of €1.34 million (R22.8 million at the average exchange rate of just above R17 per euro in 2022) and received total bonuses of nearly €1.98 million (R33.6 million).

His total remuneration for the year to 30 September 2022 came to nearly €3.55 million (R60 million).

CFO Theodore de Klerk had a basic salary of above €1.148 million and received bonuses and other benefits amounting to €1.926 million for a total of more than €3 million (R52 million).

Other senior managers were paid a total of €17.47 million (R297 million) in 2022. This included the payment of deferred bonuses of nearly €7.3 million.

Plain to attract and retain high calibre execs

Steinhoff’s remuneration committee wrote in the report that it will table a new proposal at the upcoming annual general meeting for shareholders to vote on, aimed at retaining the services of senior managers.

“With this proposed remuneration policy, the remuneration committee has found a balance between the desire to align the interests of the management board with those of our shareholders and to hold the management board accountable for the successful delivery of the strategic plan versus its key responsibility to attract and retain high calibre managing directors who are willing to bear the personal risk and extreme workload in the current extraordinary circumstances.

“The remuneration committee and the supervisory board deem it essential to ensure that managing directors [CEO and CFO] – who both took up their current roles during 2018 – are retained and remunerated adequately for the personal sacrifices and personal risk taken on by committing to the achievement of the 3-step strategy,” according to the annual report.

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.