Published Date: 2021-07-19 | Source: INCE|Community | Author: The Finance Ghost
With SENS dominated by news of damage to property and shops for so many companies, Steinhoff reminded us that they are still dealing with damage to the balance sheet.
After a significant legal setback in the South African courts, Steinhoff took a 30% knock earlier this month. It's bounced around since then but had a particularly good day on Friday off the back of this latest announcement. Overall, Steinhoff is down nearly 13% in July.
As a quick recap, Steinhoff needs to achieve a settlement with the numerous parties that sued the company for losses linked to alleged fraud and accounting misstatements. While Markus Jooste continues to breathe free air and enjoy his money, everyone else is picking up the pieces.
Some of the parties were very unhappy with the settlement proposal. Certain creditors were set to receive much better outcomes than others.
For the founders of Tekkie Town, the matter is so personal that they are willing to take it all the way to a liquidation. The liquidation application will be heard by the Western Cape High Court between 1 and 3 September 2021. It is being opposed by Steinhoff as well as the company's financial creditors.
Having taken a knock in court, Steinhoff has now materially increased the offer under the settlement proposal. Naturally, the company argues that the settlement is a far better outcome for all creditors than a liquidation process.
Steinhoff introduced the material increase in the offer by noting that the underlying businesses are performing much better these days than in 2020. That's true, but the offer probably wouldn't have been increased if the company hadn't lost in court on a Companies Act technicality!
Still, the offer is now a lot higher - EUR243m higher, to be exact. That's a 66% increase on the previous offer of EUR370m, taking the total offer to EUR613m.
While there are numerous legal complexities at play here, including a possible appeal to the latest setback for Steinhoff in court, it seems as though the creditors are mainly fighting among themselves here.
Things seem to be balancing out, with the "Market Purchase Claimants" and "Contractual Claimants" being offered a higher settlement at the expense of the "Financial Creditors". Whether it will be enough, only time will tell.
The higher settlement would see Deloitte and the insurers each cough up a further EUR78m towards the bill, so Steinhoff shareholders won't have to shoulder the entire burden.
The major risk for equity holders is the liquidation application. Beyond that, assuming the company survives, it becomes a matter of how much equity is left in the group once everything is settled. It's critical for Steinhoff shareholders that the underlying companies continue to perform well in order to maximise the equity layer in the group.
Disclaimer: the author holds shares in Steinhoff