All that the executives at Steinhoff Africa Retail (Star) want is to go back to doing what they do best – selling vast quantities of inexpensive merchandise to the mass market. Instead, the fallout from the implosion of their majority shareholder, Steinhoff, seems a never-ending distraction.
Star management was forced to issue a statement via Sens last night confirming that the founders and former shareholders of Tekkie Town have begun legal proceedings to claim monies owing from several earn-out agreements that the founders allege were in place with Steinhoff.
Steinhoff acquired Tekkie Town in a cash and share deal in 2016. However, when it unbundled its African retail businesses into Star in September 2017, Tekkie Town went with it. As a result Tekkie Town’s shareholders and founders believe that Star is now required to honour any former agreements between it and Steinhoff.
The problem is that Star executives do not believe they are party to any earn-out agreements. “We have been shown some email correspondence on this matter between Steinhoff and Tekkie Town,” says Star chairman Jayendra Naidoo. “Star’s legal advisers believe [Mr van Huyssteen’s] claims, if any, are only a matter for Steinhoff and Star is not legally subject to any claims.”
The Steinhoff acquisition of Tekkie Town occurred prior to the establishment of Star and its acquisition of certain assets from Steinhoff (which included Tekkie Town), he says. “The so-called “earn-out” is not a matter on which Star has entered into any contract whatsoever.”
The claims from the Tekkie Town founders are the most recent in a series of ‘hurdles’ that Star management has been dealing with over the last six months. “We have had our hands full for several months now,” says Naidoo. “But we feel that since we raised the funding to cover our guarantees to Steinhoff, the challenges are growing smaller. What we want to do is get to the point that we are supporting management on operational rather than corporate issues.”
There is one small hurdle to overcome. This is the fact that Steinhoff, which owns 71% of Star, is in a precarious financial position. The last thing Star needs or wants is a fire-sale of its shares. Yesterday a report in Business Day speculated that Star management was sounding out Remgro as a potential suitor.
“Everything that is associated with Star and Steinhoff is getting more attention than normal,” says Naidoo. “We are on an investment roadshow at the moment and we are presenting to many investors.
“The stake in Star is owned by Steinhoff and ultimately when they choose to sell their shares we will take provisions to assist in creating a market – not that Steinhoff needs the help. Right now we are not doing anything to push the base.”
Steinhoff raised R3.75 billion by selling 7% in Star in April. It is in a 90-day lock-up period whereby it cannot sell any further Star shares. However, the possibility that further sell-offs are possible is something the board is very aware of, says Naidoo.
Brought to you by Moneyweb