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Steinhoff Cowboy Tricks Costs Investors Billions

By John MaynardStock MarketsDec 07, 2017 08:37
za.investing.com/analysis/steinhoff-cowboy-tricks-costs-investors-billions-200196373
Steinhoff Cowboy Tricks Costs Investors Billions
By John Maynard   |  Dec 07, 2017 08:37
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All the rage on the 6th of December 2017 was the market news that Steinhoff (SNH) Marcus Jooste resigned overnight. This is due to accounting irregularities which lead to Steinhoff not publishing their results on the expected date.

Known as a dealmaker and bit of a cowboy, it seems this one has finally been thrown off his horse. Question is will he be thrown in jail ?

Official announcement by Steinhoff (SNH)

Below is the official statement from Steinhof regarding the accounting irregularities.

"Steinhoff announces investigation into accounting irregularities and resignation of CEO

he Supervisory Board of Steinhoff wishes to advise shareholders that new information has come to light today which relates to accounting irregularities requiring further investigation. The Supervisory Board, in consultation with the statutory auditors of the Company, has approached PWC to perform an independent investigation.

Markus Jooste, CEO of Steinhoff has today tendered his resignation with immediate effect and the Board has accepted the resignation. Steinhoff will update the market as the aforesaid investigation proceeds. The Company will publish the audited 2017 consolidated financial statements when it is in a position to do so. In addition, the Company will determine whether any prior years’ financial statements will need to be restated.

he Supervisory Board has today appointed its Chairman, Dr. Christo Wiese, as Executive Chairman (Delegated Supervisory Chairman) on an interim basis. In addition, Pieter Erasmus, the previous CEO of Pepkor Group, has agreed to join Dr. Wiese in an executive advisory capacity to assist with managing the group’s various retail interests around the world. Dr Wiese and the Board will supplement the management team and will embark on a detailed review of all aspects of the Company’s business with a view to maximising shareholder value. The Supervisory Board wishes to reassure shareholders that Steinhoff has a number of high quality profitable businesses around the world. Shareholders and other investors in Steinhoff are advised to exercise caution when dealing in the securities of the Group. 5 December 2017

Sponsor PSG Capital"

So what does Markus Jooste, former CEO have to say about the matter? According to Moneyweb he penned a short letter to staff stating the following:

"Hi there,Firstly I would like to apologise for all the bad publicity I caused the Steinhoff company the last couple of months.
Now I have caused the company further damage by not being able to finalise the year-end audited numbers and I made some big mistakes and have now caused financial loss to many innocent people.
It is time for me to move on and take the consequences of my behavior like a man.
Sorry that I have disappointed all of you and I never meant to cause any of you any harm.
Please continue to live the Steinhoff dream and I must make it very clear none of Danie [van der Merwe – COO], Ben [la Grange – CFO], Stehan [Grobler – executive Group Treasury and Financing] and Mariza [Nel] – Corporate Services, IT & HR] had anything to do with any of my mistakes.
I enjoyed working with you and wish you all the best for the future.
Best regards
Markus."

Those words wont help sooth investors and pensioners anger and frustration at the fact that the SNH shares they are heavily invested in either directly or via pension funds etc plummeted down at the same speed a Peregrine eagle would reach when bearing down in prey. Fund managers and investors it seems were deliberately deceived by Steinhoff with some rumours doing the rounds that earnings were overstated by billions of Rands in which related party transactions were never flagged as such in their accounting. So it was a bloodbath then?The image below shows just how brutally the market reacted to the news released by Steinhoff. The question now is which related parties of Steinhoff is affected by this? Well we can think of a few:

Steinhoff Retail Africa (SRR)
PSG group (PSG)
KAP (KAP)

Steinhoff INT HLDGS N.V-SNH
Steinhoff INT HLDGS N.V-SNH

The big question is what exactly are these irregularities, how long has it been going on, and who actually knew about it. If the directors and CEO knew about it and kept quiet they are complicit in possible fraud and should be charged and dealt with accordingly.

This has the makings of being and it probably already is the biggest financial scandal to hit South African markets, African Bank being the other, but their size fails in comparison to the size of the SNH business and the value that has been wiped off the market and investors portfolio's and pension funds' pensions and regular run of the mill investors unit trusts.

We suspect part of the massive decline in the share price is due to various long contracts on SNH, being squeezed and having to be liquidated to avoid margin calls. This can take days or even weeks to unwind, as fund managers and the likes will likely be all to keen to get rid of SNH shares so they dont have to explain to shareholders and investors in a few months why they still hold shares in SNH.

As an aside during the day Steinhoff shares plummeted it wiped out R117billion in value for investors of all shapes and sizes. That is a massive amount of value that disappeared during the course of today. We suspect Christmas will not be a very joyful one in the scenic town of Stellenbosch this year.

Performance of related or linked companies during the day?
Steinhoff : -61.4%
Steinhoff Retail Africa (SRR) :-23%
PSG Group: -6.95%
KAP: 6.8%

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Steinhoff Cowboy Tricks Costs Investors Billions
 

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Steinhoff Cowboy Tricks Costs Investors Billions

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