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Counterpoint Value Fund manager Piet Viljoen took centre stage as Tuesday’s BizNews Power Hour co-host, with the veteran analyst unpacking the nitty gritty of the Steinhoff settlement saga. Viljoen outlines the risk inherent in Steinhoff shares after yesterday’s court hearing and states that there is a possibility that ordinary shareholders will be left with nothing. Viljoen lambasts the Tekkie Town owners, who he believes should have been more cautious in their decision to take Steinhoff shares for the business. Lastly, the Naspers stable latest acquisition of Indian payments gateway company BillDesk is discussed, with Viljoen pointing out that growth via acquisition is a very risk strategy as ‘sellers always know more about the business.’ – Justin Rowe-Roberts
Piet Viljoen on Steinhoff as an investment proposition:
I think you saw the reaction yesterday with Steinhoff declining by 20% from roughly R3.80 to under R3 at one point. If you look at Steinhoff right now, it has a whole bunch of pretty good assets, but it has lots of debt against it and lots of potential legal claims against those assets. The equity portion of the capital structure is a very thin sliver that’s left. So if you get another claim into that capital structure, it will reduce that equity portion of the capital structure even further. And because it’s such a thin sliver, any significant amount there will or could make it go away completely so then equity holders have nothing left. The problem is this new claim that comes in, by the Tekkie Town people is such that if it forces the business into liquidation, you generally don’t get good prices for the assets when you sell them – because that’s what you have to do, you have to sell the assets and satisfy all the creditors and anybody else out there. And generally in such a fire sale event, you don’t get good prices, which reduces the value of the equity even more. So where the value of the equity in the past was fairly uncertain and could vary in quite a wide range – with this new additional time looking like it might even be successful, equity holders might end up with nothing, that’s possible.
On whether the Tekkie Town owners were defrauded:
I disagree with that. I think you can blame them because they had the choice to take cash or paper when they did the deal. And at that time, they were greedy enough to take the Steinhoff paper. And as with anything in life, it’s always caveat emptor. They took the paper, lots of people were buying the shares at that point and now everybody is saying ‘Oh, but we were fooled’ and this and that and the other – but I don’t have a lot of sympathy for that at all.
On Naspers/Prosus acquisition of BillDesk for R70bn:
I think anybody who does a transaction always thinks it’s fantastic. I think 100% of transactions are thought to be fantastic by both the selling and acquiring party. I mean that’s just human nature. I think time will tell. Making acquisitions to grow your business is a highly risky strategy. As we discussed with Steinhoff, you never really know what you get. And buyers tend to overpay for the acquisition, that’s just how life works. Buyers tend to overpay – very few acquisitions are underpriced because the seller knows the business a lot better than the buyer. And on top of that, if you look at this FinTech, payments type business that Naspers have bought, they’ve paid higher than average multiples like enterprise value to sales (for instance), however you want to express it, they’ve paid higher than average multiples for this sort of business. Granted it’s India – big population, big market, low market share – so there’s all those sort of tailwinds you might build into it, but that thing has to do really, really well over 5 to 10 years to justify the purchase price. So I think it’s risky. We said that the seller knows the asset better than the buyer and a minority shareholder knows even less about it. So it’s very hard to sit there and criticise. These are good business people. And they think they’re doing a good transaction. So let’s see how it works out. But it’s not something I would pay a premium for to take part in.
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