STOCK TAKE | Steinhoff's unsettling future for shareholders, and Telkom loses its suitors

OPINION

Steinhoff's unsettled future

Still top of the list for accounting scandals

It seems likely that soon the curtain will fall on Steinhoff’s life as a listed company.

In September 2021, when Steinhoff was given the green light to move ahead with its proposal to settle most of the legal claims against it, you would have been forgiven for being optimistic. After all, South Africans love a comeback story and the market has a short memory, especially if a company has the potential to deliver goods to its customers and dividends to shareholders.

With some top assets in its portfolio, including interests in JSE-listed Pepkor, and Pepco and Mattress Firm in Europe and the US respectively, Steinhoff certainly has some massive businesses with which to chart a future for itself. But Steinhoff now looks unlikely to rise from the ashes like the proverbial phoenix.

And no one, other than its creditors, seems particularly interested in its immediate future. In fact, analysts who actually actively cover Steinhoff these days are as scarce as hens' teeth. Last week, for instance, when the JSE said it had levied a total of R15 million in fines against former CEO Markus Jooste and barred him from serving as a director for two decades, News24 had to contact about 10 or more analysts to find two lone voices to offer an opinion on the matter.

While the share price had a few upticks here and there last year, reaching a 52-week high of R5.79 at one stage, generally it has experienced a steady decline. And now the December agreement Steinhoff reached with most of its largest creditors has seemingly quashed any hopes of a resurgence in the shares.

The agreement, which still needs to be voted on by shareholders in the next few months, could see the biggest creditors holding 80% of the company, and shareholders the rest. The deal will help settle its debt of €10 billion (R185 billion), and will mean the new entity will no longer be listed on the JSE. 

Since the announcement, the shares have lost most of the gains from last year and the company in its listed form is barely a shadow of its former self. With a value now of somewhere around R2.3 billion - from more than R200 billion before its December 2017 collapse stemming from dodgy books - the Steinhoff show is over. 

Telkom's suitors walk away from talking

Rain comes and goes

SA’s third-largest mobile operator, Telkom, no longer has a potentially game-changing deal in the mix, following the departure of Rain from talks, without any due diligence even being conducted.

Both parties managed to agree the time is not right for a deal, but said very little else, although Rain has indicated it still could be interested – sometime down the line.

Rain’s interest in Telkom, or more specifically, its interest in Telkom being interested in it, got attention in August last year after it was forced to withdraw a statement expressing merger interest due to failing to first get permission from the Takeover Regulation Panel. In September, it then made things formal, putting forward a proposal that Telkom issue new shares and take it over. All that for nothing, it seems.

News of Rain’s departure helped lift Telkom’s shares by 11%, and while there may have been speculation about MTN once again reaching out, another consideration may have been the hefty dilution that Telkom’s shareholders faced. Rain has been valued at about R18 billion, rivalling that of Telkom’s, meaning the number of listed shares could potentially have doubled.

In October, Africa's largest mobile operator, MTN, called off takeover talks due to a lack of "exclusivity", and while saying the merits of such a tie-up are still compelling, it’s been mum on what could come next.

All the parties would say was that the timing for a deal was off, and this is clearly the case, with many companies opting to rather play it safe in a world where the term "nuclear weapons" is getting a lot more airtime.

Global financial data firm Refinitiv has reported the biggest negative swing in deal-making activity on record in 2022, with activity grinding to a halt in the middle of the year, bringing an end to a two-year boom. The initial public offerings market is also tough, and according to Ernst & Young, proceeds fell 61% in 2022 as investors shifted to less risky bets. So it makes sense to wait for global markets to settle, some sense of certainty over where interest rates will peak, and get a little more clarity on the state of geopolitics.

There are local facts to consider too for either suitor - including further spectrum auctions scheduled for later this year. Also, any MTN-Telkom tie-up is likely to lead to a lengthy competition process. As of 2022, Telkom had an active mobile subscriber base of 16.9 million, MTN SA had just over 35 million, and Vodacom had more than 45 million, meaning that MTN would immediately leapfrog its rival to be the biggest player in SA.

Telkom's shares have managed to recover 7.6% in the first two weeks of trading - outperforming MTN, which fell slightly, making any cash and shares offer on their end more expensive. The company is also facing the prospect of a hefty R13 billion tax bill in Ghana, but despite this, its valued at R255 billion on the JSE - 14 times that of Telkom - and the ball is very much in its court.

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Sources: Iress, Momentum Investments

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