Brace for PwC’s Steinhoff report — it won’t be pretty
Can it survive an onslaught of legal claims? It’s a tough call, but it might still evade the lurking crocodiles
After 15 months, the much anticipated PwC forensic report into Steinhoff is likely to be out within days. Steinhoff is expected to release an executive summary of that report ahead of the appearance by CEO Louis du Preez and chairperson Heather Sonn in parliament on March 19.
Within Steinhoff there was apparently some resistance to releasing even the summary. This was partly for fear of legal reprisals, and partly because it could tip creditors as to whom to pursue for damages, when Steinhoff would prefer to be first at the door.
However, sanity won out. One Steinhoff insider says the company will reveal “the key findings” of the PwC probe, given the immense public interest. Though this source added: “We have to do so in a way that is considerate of our multiple responsibilities to our shareholders, to the creditors and the claimants.”
A third person says the PwC report confirms the epic level of deceit involved – artificial deals constructed with related parties, inflated property values, embellished intangible assets, and the lies told to mask it all. “It talks of the whistleblowers, what Deloitte said, what the nonexecutive directors said; it identifies the entities involved and the transactions.”
That executive summary will be a broad-brush account of what happened in the lead-up to Steinhoff’s crash on December 6 2017, when CEO Markus Jooste resigned and the company said it had picked up “accounting irregularities”. The gravity of that day can’t be overemphasised – besides sparking a 95% slide in Steinhoff’s share price, the atmosphere of paranoia and mistrust has haunted almost every boardroom and audit committee across the JSE ever since.
So PwC’s report will be keenly read, even if it’s the abbreviated version, rather than the full report which, it is understood, runs to more than 15,000 pages.
Says another insider: “The main goal was to say exactly what happened, and what was uncovered. PwC are not prosecutors, they’re not judges, so you have to read the report in that context.”
And, critically for accountability, it will name the individuals implicated in those shenanigans: foremost among them Jooste himself; Steinhoff’s former European FD Dirk Schreiber; and the former Steinhoff Europe CEO Siegmar Schmidt. It was Schmidt who, after leaving Steinhoff, set up a company called Campion Capital in Switzerland that “bought” various assets from Steinhoff, using the retailer’s own money.
For those hoping for a wholesale castigation of all the directors, it will be a disappointment. For one thing, PwC found no evidence that any of the non-executive directors, including former chairperson Christo Wiese, knew about the fraud.
Says one of the sources: “The biggest issue the non-executive directors will face from that report is whether, in the last six months, it took them too long to take Deloitte’s concerns about the accounts seriously. There is a lot of scrutiny over their role.”
What PwC’s report doesn’t include is any finding around the SMS that Jooste apparently sent to a friend five days before he quit, telling him there was likely to be bad news coming so it would be a good time to sell Steinhoff shares. But the regulator, the Financial Sector Conduct Authority, is now weeks away from announcing its findings on whether there was any insider trading on this front.
Still, the PwC report will tip a series of dominoes.
First, every investor or anyone who sold Steinhoff so much as a pencil will probably unleash their lawyers in an unseemly grab for the indemnity insurance of both Steinhoff and auditors Deloitte.
Second, Steinhoff itself will have to pursue those flagged in the report – including Deloitte and Jooste. And then, since that insurance pool isn’t unlimited, those claimants will surely come for what remains of Steinhoff’s assets.
It seems Steinhoff is already preparing for this. Last month, it nominated David Pauker to its board – a US lawyer with 25 years of “turnaround” and “restructuring” experience. Pauker was most recently appointed chairperson of Lehman Brothers, after the banking group emerged from bankruptcy in 2012.
Can Steinhoff survive an onslaught of legal claims?
It’s a tough call. It still has a few good assets, including 71% of Pepkor, valuable brands in Europe such as Conforama, and an expansive property portfolio.
Sonn and Du Preez no doubt believe that at this point Steinhoff can navigate through the crocodiles to safety. But it’s precarious, and its fate will depend on how severe the fallout is from the PwC report.