Braam van Huyssteen, the entrepreneur who sold the Tekkie Town footware chain and was left with worthless Steinhoff shares after the retailer’s collapse, has rebuked the CEO of Pepkor for not disclosing the findings of an inquiry into a controversial executive share ownership scheme that shielded directors from losses.
In a scathing open letter to Leon Lourens, Van Huyssteen said the group’s chairman, Jayendra Naidoo, “promised an inquiry through your attorneys. The outcome of this inquiry never saw the light of day”.
The scheme, incorporated in a company called BVI 1499 and which included over 70 Pepkor executives, benefited from a guarantee in 2018 amounting to R440m from Pepkor when the company undertook to cover any deficit incurred in a lending transaction. The shares were used as collateral for loans that allowed the company to acquire more shares in Steinhoff.
A group of former shareholders of Tekkie Town, led by Van Huyssteen, who had sold the business to Steinhoff for R3.25bn in August 2016 before Pepkor (previously called Steinhoff Africa Retail) even existed, instituted legal action in 2018 to recover the business they sold to Steinhoff. The shareholders believed they were duped into selling the business in exchange for restricted shares in Steinhoff by its former CEO, Markus Jooste.
Naidoo says Van Huyssteen claims are simply not true.
“Pepkor formed an independent subcommittee of the board to assess the validity of guarantees provided by Pepkor in respect of BVI. The services of an external law firm were used and the findings were communicated to the market on several occasions. Pepkor has provided for this exposure in its annual financial statement,” said Naidoo, in response to questions from Business Day.
The company provided four instances where the guarantee and its financial effects were disclosed. Naidoo’s letter to shareholders in Pepkor’s 2018 annual report contains a reference to the advice the company received on the matter.
“The board subcommittee on the BVI matter has conducted detailed due diligence on the contractual arrangements between BVI and Pepkor since 2012. The company is advised that guarantees issued by certain Pepkor subsidiaries in 2012 remained valid,” wrote Naidoo.
The deal between Tekkie Town and Steinhoff was agreed in September 2016 using a Steinhoff share price of R75 a share. The former Tekkie Town owners received stock worth about R1.7bn. But the restricted nature of the shares meant that Van Huyssteen and company could not sell the shares for periods ranging from two to three years while they continued to oversee the running of the business for Pepkor after an internal restructuring saw Steinhoff transfer the business into the Speciality Fashion and Footwear division of Pepkor.
Steinhoff still retains a 71% interest in JSE-listed Pepkor Holdings (which was formerly called Steinhoff Africa Retail). But following the departure of former Steinhoff CEO Markus Jooste in December 2017 amidst allegations of “accounting irregularities”, shares in Steinhoff have plummeted, leaving the Tekkie Town founder’s shares worth virtually nothing.
By contrast, a share ownership scheme created for Pepkor executives prior to its merger with Steinhoff, and in which its executives opted to exchange shares in Pepkor for Steinhoff and borrow money to acquire more, found the scheme under water after Steinhoff’s rapid decline.
The guarantee was not previously disclosed by the company when it listed on the JSE in September 2017. After it became public, Naidoo announced the company’s lawyers had been appointed to investigate the full financial implications of the guarantee and whether it was still valid.
Pepkor also announced in its 2018 annual report that less than 60% of the original BVI shareholders were employees of the company when it listed on the JSE.
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