Teetering Steinhoff prepares to shop around its retail assets

Johannesburg - Steinhoff International Holdings, which sells $89 mattresses to Americans and two-for-a-pound cans of tomato soup to the British, faces a potential fire sale of its global retail holdings as it battles for survival. 

After a week in which its shares collapsed and its bonds were downgraded to junk amid an accounting scandal that prompted Chief Executive Officer Markus Jooste to quit, the owner of US furniture chain Mattress Firm and UK discounter Poundland needs to appease the creditors it owed more than $21bn as of the end of March.

To raise liquidity it may have to part with assets it built up in a two-decade acquisition drive.

“It’s so important that these companies that are going concerns are separated out, taken care of and put back into an operational situation,” Bruce Main, a money-manager at Ivy Asset Management in Johannesburg, said by phone.

“The right action needs to be taken to ensure that the businesses that can survive are put into a situation where they can continue.”

After losing more than four-fifths of its value when it said last week that it was unable to publish financial results as scheduled, the owner of Conforama furniture outlets in France, the Pep clothing chain in Africa and Harris Scarfe houseware stores in Australia has some explaining to do.

After saying they were weighing more than $1bn in asset sales, executives left creditors and 130 000 employees guessing.

Steinhoff said late on Sunday it had hired investment bank Moelis to handle discussions with lenders ahead of a showdown with bankers that’s been delayed until December 19. AlixPartners LLP, a US corporate turnaround specialist, has been recruited to advise on operations. Meanwhile PricewaterhouseCoopers, which Steinhoff hired last week to probe the accounting irregularities, has started its investigation.

Wiese's wealth

Steinhoff’s chair and biggest shareholder, Christo Wiese, is in talks with lenders to seek a standstill on a margin loan of about $1.8bn, under which the lenders wouldn’t sell stock that backs the financing until 2018, according to people with knowledge of the discussions.

He said he couldn’t comment when contacted by phone on Monday. The majority of Wiese’s wealth has been wiped out by the scandal, falling to $1.8bn from $4.4bn, according to the Bloomberg Billionaire’s Index.

The lack of transparency about what went wrong could spook potential buyers of Steinhoff units concerned about what lies behind the facade of a company that’s run from South Africa, but has its main stock listing in Germany, with an official corporate registration in the Netherlands. 

In a Thursday statement, the company said it may sell assets worth at least $1.2bn and is reviewing the recoverability of non-South African assets worth a further €6bn. 

Before moving toward any disposals, the company has to determine whether assets are correctly valued, said Thandeka Zondi, director of strategy at Johannesburg-based auditing firm SekelaXabiso.

“To do this they will have to provide assurance that all the rights and obligations relating to those assets belong to the group, are valued at the right level, and the value is recoverable.”

Profitable assets

Steinhoff may have to sell some of its profitable assets to raise the cash it needs to keep running the rest of the company, she said.

The retailer spun off its African unit in September, listing it on Johannesburg’s stock exchange while keeping a majority stake. STAR, as Steinhoff Africa Retail is known, released debut earnings last week that beat estimates, before the shares plunged almost a third on the woes of its embattled parent.

“Steinhoff’s primary concern will be keeping the South African business alive, along with their Pepkor business in eastern Europe,” Bryan Roberts, an analyst at TCC Global, said by phone. “Those two are the jewels in the crown.”

That’s partly due to the high cash generation and profit margins at Pep, a pan-African clothing chain bought from Wiese in 2014.

The retail landscape in many developed economies, with shoppers shifting online, creates further hurdles in any breakup of Steinhoff. It could be difficult to find buyers for the company’s home-furnishings chains, according to Alec Abraham, an analyst at Johannesburg-based Sasfin Securities.

“When it comes to furniture businesses, Steinhoff has been the only buyer in town,” he said.

While getting full price for these assets may be difficult, “there does seem to be some value in quite a few Steinhoff units”, Charles Allen, a London-based analyst at Bloomberg Intelligence, said in an email.

He cited Conforama, which sells $350 Magimix food processors and $800 faux leather corner sofas, as well as STAR, whose Ackermans stores sell clothing ranging from lingerie to infant vests.

More recent acquisitions such as Mattress Firm and Poundland, “which may have some difficulties, likely have some value,” he said.

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