Why the Stellenbosch cabal lost a fortune on Steinhoff
Coronation Fund Managers founder Thys du Toit part of a stellar network of Winelands moguls to take a bath
In the seven-page letter it sent to clients in January 2018 explaining why it was one of the largest investors in Steinhoff, Coronation Fund Managers referred to a long list of “highly respected business people” whose association with Steinhoff had given them comfort that the company was in good hands.
They added a second list, which contained the names of members of the supervisory board who were deemed to be strong and independent and appeared to take their fiduciary responsibilities very seriously.The former list included the likes of Sean Summers, Andy Bond, Christo Wiese, Jannie Mouton and Louis van der Walt. On the latter list were Johan van Zyl, Steve Booysen, Theunie Lategan and Len Konar.
Missing from the lists of individuals who provided comfort were the names of key players Thys du Toit and GT Ferreira.In June 2015, just ahead of the transfer of Steinhoff’s primary listing to Frankfurt, Du Toit had become a major investor in Steinhoff when he swapped over R1-billion of PSG shares for Steinhoff shares.
Around the same time Ferreira emerged with a similar sized investment in Steinhoff after swapping his PSG shares.The two transactions appear to have been part of Steinhoff’s acquisition of 17.1 million PSG shares in exchange for the issue of 45.4 million Steinhoff shares. The deal bumped up Steinhoff’s stake in PSG to a “significantly influential” 27%.
Although not mentioned it’s difficult to imagine that Coronation was not also influenced by the fact that Ferreira and Du Toit were significant shareholders in Steinhoff. After all Ferreira was one of the co-founders of the enormously successful FirstRand group and was actively involved in investments. Even more significant is that Du Toit was one of the founders of Coronation.
In a recent interview with Beeld newspaper Ferreira explained that his Steinhoff investment, on which he and associated entities have lost about R1-billion, traces all the way back to 2004 when he, Du Toit and three colleagues acquired 11% of KWV.The five businessmen, referred to as the Group of Five, bought the shares from farmers in the hope of converting a stodgy and poorly managed operation into a listable drinks business. That plan came to naught but Ferreira and his four colleagues made a hefty profit when they offloaded the shares and subsequently emerged with shares in PSG.Those PSG shares were swapped for shares in Dutch registered Steinhoff just months ahead of its Frankfurt listing in 2015.
Some of the KWV farmers who sold their shares to Ferreira back in 2004 for a relative pittance and looked on as the share traded at ever higher prices (on the over-the-counter facility provided by the company) regard the Steinhoff collapse as something akin to karma.
That one of South Africa’s most influential business networks had a major exposure to Steinhoff may help to explain why the furniture retailer was able to grow so quickly that its demise was almost inevitable.
Networks are frequently very effective in allocating capital. The network that operated around Stellenbosch was particularly effective; it included extremely well-informed and experienced individuals who understood business. Over the period of a decade or two they have made extremely valuable investments and in the process made large and small fortunes for their stakeholders.
A tolerance for massively overpaying for acquisitions
But the familiarity that enables the easy movement of capital and information is also what dulls the sense of scepticism. Bumping into each other around Stellenbosch and Hermanus or sharing a passion for horse racing may have helped to quiet any concerns about the almost doubling of shares in issue between 2015 and 2017. And it may have encouraged a tolerance for massively overpaying for acquisitions or for regularly changing reporting periods. By some accounts the hefty premium paid for Tekkie Town was due to a shared interest in horses.Add to this familiarity a determination, at almost any cost, to diversify out of South Africa and you have key ingredients for a corporate meltdown.
Remarkably, given that PSG’s head office is situated in the centre of Stellenbosch and given that Steinhoff was a major shareholder in PSG, its fund management division was one of the few major institutional investors who actually sold Steinhoff shares ahead of the December collapse.
By early 2017 there was evidence the network was taking strain. One of the PSG investment managers explained that the exit decision was based on concerns about the treatment of minority shareholders. He felt that major shareholder Christo Wiese and Brait were benefiting too often at the expense of minorities.
The explanation contained no reference to concerns about accounting practices, it was essentially about the divvying up of the spoils.