STAR saddled with hugely expensive acquisitions by Steinhoff

Steinhoff Africa Retail Ltd (“STAR”) acquired the Tekkie Town investment and the investment in an unnamed call centre and debt collector from Steinhoff Investment Holdings Ltd (“Steinhoff”) as part of the take-over of the Steinhoff Africa Retail assets with effect 1 July 2017.

Steinhoff respectively paid R3.4bn and R471m for these investments, settled though the issue of STAR shares.

The acquisitions of Tekkie Town at a premium of R2,251bn and the Call Centre / Debtor Collection business at a premium of R282m were concluded by Steinhoff during October 2016 and February 2017 respectively.

STAR was only incorporated on 22 May 2017, yet the purchase prices were settled through the issue of STAR shares.  It appears likely that Steinhoff guaranteed the purchase price should STAR not be incorporated and able to issue the shares in settlement.

These goodwill values are huge, and symptomatic of the now publicly known excessive prices paid by Steinhoff for acquisitions.  It is unclear if any profit warranties were obtained from the unnamed vendors as a condition of the acquisition” says Theo Botha, a director of Proxy View.

Tekkie Town’s operating profit is only R280m and the Call Centre / Debt Collection business showed R69m, indicating that the goodwill paid for these investments certainly is excessive.

What is of concern is that these acquisitions were paid for through an issue of STAR shares and included in the STAR transaction as part of the take-over, guided by the Steinhoff executives.

Botha says “It is unclear if the first board of directors of STAR objected to the inclusion of these acquisitions in view of their huge cost, effectively diluting the value and interest of the other shareholders.  If not, shareholders should question their independence.”

Added to this, Botha questions the independence of both the chairman, Jayendra Naidoo and Heather Sonn on the basis of their respective involvement with the Lancaster Group and Steinhoff International Holdings NV, jointly owning 85% of STAR.

He indicated that Proxy View has completed a Core report analysing the performance of STAR in respect of environmental sustainability, socially responsible initiatives, practising sound corporate governance principles and importantly, executive remuneration.

In our view the remuneration policy and report must rate as a particularly low-quality disclosure by the board of a top 100 JSE-listed issuer” says Botha.

This report is available here.