Two numbers stood out when former Shoprite CEO Whitey Basson looked at Steinhoff’s finances – return on equity and the cost of debt.
Basson said when analysing Steinhoff, the return on equity was just over 5% while the cost of debt was above 8%.
“If you cannot deduct eight from five, you should retire. I said the sums don’t work; it is the wrong way around.”
It was one of the reasons why Basson never invested in Steinhoff and why he opposed a merger between Shoprite and Steinhoff.
He was nearly forced into the merger when former Shoprite chairman and largest shareholder, Christo Wiese, wanted to put more of his assets under one roof.
Wiese’s plan was for Steinhoff to sell its African assets to Shoprite for a controlling stake in the grocery chain.
Steinhoff would have exchanged its shares for those of Shoprite’s two largest shareholders – Wiese and the Public Investment Corporation (PIC).
Basson did not like the deal. He said in a 2019 interview that he did not like former Steinhoff CEO Markus Jooste and was fiercely opposed to the merger.
However, it was not Jooste’s personality which was the deciding factor. Instead, it was Steinhoff’s finances and poorly run shops.
Basson said he could not find any financial figures proving that Steinhoff was a good investment.
Another problem was poorly run shops which did not have the same level as Shoprite’s stores.
“When I looked at the Steinhoff business, it was not something which I would have liked to be associated with,” he said.
“I was also very uncomfortable about the shoe business – Tekkie Town – which Steinhoff bought. I don’t like shoe businesses because I cannot remember one that survived since I was young.”
Basson was successful in scuppering the merger between Shoprite and Steinhoff. However, a new deal soon emerged.
Wiese and the PIC agreed to sell their Shoprite shares to Steinhoff, which gave Jooste’s company a 23.1% stake and 50.6% voting control in the retailer.
Commenting on the deal, Basson said he could not tell anyone what they should do with their shares. “They can sell their shares to whomever they want to,” he said.
However, Basson told Wiese he could not sit on a board where Jooste, as the CEO of Steinhoff and the controlling shareholder, would call the shots.