Steinhoff – this way down when paying too much for poor businesses

July last year Steinhoff International set their sights on one of the UK’s least promising businesses – a small undistinguished payday lender amongst many, amounting to little more than a rickety-looking website and a small loans book.

This clearly did not fit with the other business operations of Steinhoff – it was a mediocre business in a declining market, catering to people who borrow short-term at high rates.

Why on earth invest in it?

The graph alongside shows the extent to which the acquisition spree was driven by management.  What is now equally clear is that they did not know what they were doing, and the board was fast asleep at the wheel!

A likely cause of the spectacular collapse could be found in exploitation by management and the board of the leeway granted by shareholders  for the discretionary issue of company shares in acquiring businesses, or to issue it for cash without final shareholder oversight and approval.

Read the full article here.