Bye-bye Steinhoff

Steinhoff International Holdings will be finally liquidated on Friday, 13 October 2023, when the company and its shares shall cease to exist.

Steinhoff has a primary listing on the Frankfurt Stock Exchange and a secondary listing on the JSE.

The company was founded in 1964 by Bruno Steinhoff in Westerstede, Germany. He bought furniture at a low price in Eastern Europe and sold it at a premium in Western Europe.

Steinhoff moved its headquarters to South Africa in 1998 after merging with Gommagomma, a local furniture company run by Markus Jooste, who later became the CEO of Steinhoff.

The company went on an acquisition spree and became a retail powerhouse with prominent brands like Pepkor, JD Group, and the US-based Mattress Firm in its stable.

Steinhoff became a favourite among local investors as it appeared to perform well with growing revenue and turning every acquisition into a financial success.

Despite warnings from a few analysts about rising debt and accounting irregularities, investors kept piling in.

The share price peaked at R96.85, which made Steinhoff one of the largest companies in South Africa, with a market cap of R359.6 billion.

The start of the end

The house of cards came crashing down in 2017 after news broke of major accounting irregularities in Steinhoff’s financial statements. PwC revealed a $7 billion overstatement of group sales.

The share price plummeted to R1.26 per share, and shareholders lost billions. There were many casualties, including pension funds and private investors.

There were desperate attempts to save the company. However, Steinhoff’s debt became a major issue.

In the restated 2017 annual report, the company’s total liabilities and debt increased dramatically. Its overstated assets were also significantly lowered.

For the first time in 2019, Steinhoff’s total liabilities exceeded its assets, making the group technically insolvent.

Steinhoff got into a desperate situation, with most of its debt, €10.431 billion, becoming payable in July 2023.

There was no way that the group could repay its debt, and Steinhoff announced that it would restructure the company to settle its debts.

An Amsterdam District Court ruled in favour of a proposed debt restructuring plan that would see Steinhoff cease to exist.

This restructuring aimed to, among other things, extend the group’s external services debt to at least June of 2026.

During this period, Steinhoff will be delisted from both the JSE and the Frankfurt Stock Exchange.

Steinhoff will then fall under an unlisted entity called New Topco. After the maturity extension of Steinhoff’s debt, the assets within Steinhoff will be liquidated.

The assets within the Steinhoff group will be sold, and 100% of the proceeds will be used to repay Steinhoff creditors.

Steinhoff shareholders lose it all

All Steinhoff shareholders will lose their shares and not receive any payment or distribution for the shares they hold. However, they will be entitled to contingent value rights (CVRs).

These contracts give shareholders the right to distributions from New Topco after settling all creditors’ debts.

These contracts have a maturity term and will expire within a certain period, leaving investors with nothing if there are no surplus proceeds after all creditors have been repaid.

It is highly unlikely that shareholders will receive any payment for the shares they held. Unsurprisingly, the Steinhoff share price plummeted to a few cents.

Analysis Group compiled a report to determine Steinhoff’s liquidation value, stating that when liquidated, total proceeds from Steinhoff would be between €5.2 billion and €7 billion.

This is significantly less than Steinhoff’s total debt at the time of the report of around €10.4 billion.

Simply put, Steinhoff will be delisted and sold for spare parts, with the money going to creditors. Shareholders are unlikely to see a cent.

Over the last few months, Steinhoff traded between 13c and 2c per share. It is not clear who would buy the shares, knowing that shareholders are set to lose all their money.