One company made millions from Steinhoff’s collapse

While everyone was running for the hills and away from Steinhoff after 2017, Peregrine Capital began building a position in the company’s preference shares. 

Over the six and a half years in which Peregrine held these shares, they generated a compound annual return of 30%, including dividend payments. 

This was revealed in Peregrine’s annual investment letter, released in early February 2025. This letter outlined the performance of the company’s funds over the past year and what they are looking out for in the coming year. 

Peregrine had a stellar year, with its High Growth and Pure Hedge funds delivering 22.0% and 15.8% net returns, respectively.

This performance was partly driven by Peregrine’s investment in Steinhoff’s preference shares, which began almost as soon as the Stellenbosch-based company’s fraud was exposed. 

During the first half of 2024, Peregrine fully realised its investment in Steinhoff preference shares, described as an exceptionally successful investment for its funds. 

Peregrine’s fund had zero exposure to Steinhoff equity in the run-up to and during the disclosure of the events that occurred at the company. 

Steinhoff was primarily a furniture company 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.

The company’s share price peaked at R96.85 per share, which made Steinhoff one of the largest companies in South Africa at a market value of R359.6 billion. 

It all collapsed in 2017 after news broke of significant 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.

How Peregrine made money

While most investors were running for the hills, Peregrine dropped everything to conduct in-depth research on Steinhoff to find out whether there were any opportunities for its funds. 

After a period of intense work on several Steinhoff debt instruments, it settled on Steinhoff’s JSE-listed preference shares as a potential investment idea. 

This instrument differed from the Steinhoff debt or equity in that it was issued not from Steinhoff International NV, where the fraud was perpetrated and where the vast majority of the debt resided. It was from Steinhoff’s South African subsidiary.

Peregrine was particularly attracted by the fact that the South African subsidiary had minimal external debt while, at the same time, owning a controlling share in the Pepkor Group. 

Pep was, and still is, a phenomenal business with a good management team, making it an attractive investment in its own right. It had nothing to do with the fraud committed at the Steinhoff holding company level.

The opportunity to invest arose in the turmoil following the damning revelations of fraud at Steinhoff. Investors sold everything, including things distantly related to the company. 

Crucially, investors also sold down Steinhoff’s preference shares from the R75 level it traded at before the fraud was revealed to R20 per share. 

Peregrine began steadily building a position in these shares in early December 2017, merely days after the fraud was revealed to the world. 

This was during the week when Steinhoff’s ordinary shares collapsed from R55 to R6 a share. The ordinary share eventually went all the way to zero.

Peregrine snapped up Steinhoff preference shares at below R20 per share and continued to buy them in the market from 2017 through 2023. 

Its analysis showed that the South African Steinhoff entity had no solvency or liquidity issues, which ultimately proved correct. The value of its preference shares was covered multiple times by the Pepkor shares owned by the subsidiary. 

Steinhoff also continued to pay contractual dividends on the preference shares during the restructuring process because the South African entity was solvent and healthy.

This investment worked out exceptionally well for Peregrine Capital. 

Its funds received R50 in dividends per share over the six-and-a-half-year holding period, after which Steinhoff repurchased all the preference shares at R98 per share on 24 June 2024. 

Peregrine’s funds received a total of R148 per share in dividends and final sale proceeds on an instrument that it started buying at R20. 

The total return on the investment was above 30% per annum over the six-and-a-half-year holding period.