Steinhoff paves way to complete settlement of global claims

It came as a big surprise that Steinhoff International Holdings announced that it has reached settlements with two of the parties that were aggressively seeking redress for damages suffered due to the accounting scandal that came to light towards the end of 2017.

In both cases – one instituted by the vendors who sold the well-known Tekkie Town chain to Steinhoff and the other by Trevo, an investment trust based in Mauritius and listed on the Mauritius Stock Exchange – the unexpected settlements followed court rulings against Steinhoff.

These court rulings effectively halted, and had the potential to delay for years, a global settlement agreed to between affected parties and Steinhoff.

Trevo

Trevo won a ruling from the Western Cape High Court that found that Steinhoff and, by implication, its board of directors, contravened the Companies Act in certain instances in that it misrepresented financial results, traded recklessly, was negligent and defrauded the public.

Trevo claimed damages of R2.1 billion for losses it suffered on a long position in Steinhoff when the share price crashed spectacularly from nearly R62 to below R5 within a few days during the first week of November 2017.

The settlement of the Trevo claim is interesting in that no money will be changing hands, and also due to the people involved.

The announcement by Steinhoff states that Ainsley Holdings Pty Limited (an indirect subsidiary of Steinhoff) will grant to Trevo call options to purchase 120 million Pepkor shares, which option is exercisable in three years’ time at an exercise price of R24.92 per share, subject to adjustments applicable in certain limited circumstances.

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The announcement says that Trevo agreed to support the Steinhoff global settlement following the satisfaction of suspensive conditions and will, on the effective date of the settlement, withdraw all litigation between Trevo and Steinhoff in full and final settlement of claims against the Steinhoff group and its directors, officers and auditors.

The pricing of the option to buy Trevo’s conditional agreement to withdraw its legal claims is particularly interesting.

With an exercise price of R24.92 per Pepkor share, the option is far out of the money considering that Pepkor is currently trading at around R21 and that Trevo’s original claim was for R2.1 billion.

Alternatively, Trevo must feel confident of Pepkor’s growth prospects and that it will recover the losses suffered on its earlier investment in Steinhoff.

Steinhoff says the settlement of Trevo’s “alleged” claims will not impact the recoveries of other scheme creditors under the Section 155 proposal, other than the financial creditors. Thus, the approval of financial creditors is a suspensive condition of the proposal.

Steinhoff CEO Louis du Preez says the settlement with Trevo will be another step towards conclusion of the implementation of the Steinhoff global settlement.

“We continue to work towards satisfaction of the Trevo suspensive conditions and thereafter the approval of the SIHPL [Steinhoff International Holdings Proprietary Limited] S155 proposal by the Western Cape Court in January 2022,” says Du Preez.

With regards to the people behind this, Steinhoff stated in the announcement that the settlement with Trevo opens the door for Pepkor to talk to Pieter Erasmus with regards to “a future role” on the Pepkor board of directors.

Erasmus is a former CEO of Pepkor and director who resigned unexpectedly when the Steinhoff scandal broke, and was involved in the legal proceedings against Steinhoff on behalf of Trevo, apparently controlled by his family trust.

Tekkie Town vendors

It is noteworthy that the relationship between the former owners of Tekkie Town and Steinhoff has also improved, to such an extent that Steinhoff included a direct quote from Tekkie Town founder Braam van Huyssteen in the formal announcement of the settlement.

“We are pleased to have reached terms with Steinhoff which will come into effect from the settlement effective date of the Steinhoff global settlement proposal,” says Van Huyssteen in the announcement.

“We will be supporting Steinhoff to implement the settlement as soon as possible.

“We are satisfied with becoming a shareholder of Pepkor, and we are looking forward to concentrating on our businesses.”

This sentiment is in stark contrast with the arguments during years of acrimonious legal proceedings.

The arguments often spilled over to the public domain, during which the Tekkie Town vendors insisted that they were paid in worthless Steinhoff shares and they will continue to fight until they get their business back.

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Du Preez repeated that the settlement with the Van Huyssteen grouping is another positive step towards conclusion of the implementation of the Steinhoff global settlement.

Compromise

The settlement looks like a good compromise. The formal statement says Steinhoff will settle the claim against it for R500 million cash and 29.5 million Pepkor shares. The shares are worth in excess of R620 million at the current share price.

In return, the Tekkie Town founders will effectively discontinue their application for the liquidation of Steinhoff and any other legal challenges.

Bernard Mostert, one of the founders and former CEO of Tekkie Town, and now CEO of Mr Tekkie, let slip to Moneyweb that the terms of the settlement were agreed to and the agreement was signed only on Wednesday morning – and after only a few weeks of talks.

“Negotiations started late November,” says Mostert.

“We were happy to run the legal process to the very end, as it was the most logical and rational remedy available to us. However, we have come to expect the unexpected.

He also implies that the group of Tekkie Town entrepreneurs have found a new and exciting niche with Mr Tekkie, and that they are very happy with it.

Mr Tekkie has grown quickly and announced a merger with the well-known Busby a few months ago.

Mostert and Van Huyssteen say it was mostly intentional to keep the newer Mr Tekkie different from Tekkie Town, maintaining that the two businesses are complementary.

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In an earlier legal battle to evict Pepkor from the then Tekkie Town headquarters in George (which is owned by Van Huyssteen), the argument was that it wanted to run Mr Tekkie and Tekkie Town side by side from the building, once they got Tekkie Town back from Pepkor.

Now Mostert says things are going well at Mr Tekkie and that the realisation is “that successful litigation and the return of control of the business would probably negatively impact the momentum that we enjoy in our current business”.

“Our focus is now on moving forward and we take pride in the fact that we have built a successful business and are eager to do so for the second time,” says Mostert.

“Wherever Tekkie Town may go and wherever Pepkor may take it, we are proud that we delivered it in good shape. Our journey in building it and fighting for it has shown how much we care for Tekkie Town and we wish them well taking it forward without us.

He adds that an equally important consideration was the fact that participation in the settlement will allow South African class action participants to share in the settlement proceeds.

“This will address, to some degree, the losses they suffered at the hands of the Steinhoff scandal,” says Mostert.

By Adriaan Kruger

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