🔒 The Editor’s Desk: A look behind the latest events at Steinhoff

DUBLIN — Steinhoff shareholders seemed to breath a sigh of relief this week when Steinhoff-owned retailer Mattress Firm managed to secure an eleventh-hour bank bailout. But is this really the good news it seems, and what may be behind the deal? Alec Hogg and Felicity Duncan dig into events at Steinhoff as the consequences of the scandal continue to unfold. They also take a look at Nhlanhla Nene’s big week (and his Gupta apology) and chat about Elon Musk’s latest Tweet-storm. – Felicity Duncan 

Hello, and welcome to this week’s episode of The Editors Desk. This is BizNews Radio and I’m Felicity Duncan. With me on the line is our editor in chief, Alec Hogg.
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Alec, you have spent a lot of time this week focussing on what has become “affectionally” known as Nenegate and there’s just been a lot happening. I think that for people out there it would be very helpful to get your kind of bird’s eye perspective on everything that emerged this week out of the hearings, out of his statements, and really, where we’re at.

Yes, it’s been quite a week in fact, for those of us who were intimately absorbed by the 9^thDecember announcement, or the consequences of that announcement of Jacob Zuma’s, to fire Nhlanhla Nene. What was really fascinating, although we had some feelings about it and you often do as journalists, you talk to people and they give you insights, their insights. You don’t actually know the real story until the horse tells you from his own mouth and that’s what happened this week.

I listened in fascination as Nhlanhla Nene told his story of how he got to the point, on the 9^thDecember, where Jacob Zuma called him in for two minutes to fire him, after a cabinet meeting that whole day and the previous day, after he’d been brought into a cluster of cabinet ministers, who would have had some engagement in some way with the proposed nuclear deal. And he’d currently kept isolated there and then brought in at the last minute and effectively, told that we don’t care what you think about the price – we’re going to do it.

So, lots of the work we do as journalists is we have a jigsaw puzzle and we put various pieces into that jigsaw puzzle through our research and investigations. Now, one of the big problems I have with so-called investigative journalists is that they are given one side of the story and they believe, often, that they have to look after those contacts so, they just see half the jigsaw puzzle. Whereas if you do it in the old-fashioned, Barry Sergeant way of things, you do the work yourself. You don’t take anybody for granted. You keep looking around at it. And in essence, for me, this was a lot of pieces in the jigsaw puzzle that were put together. It was 4.5 hours of a very confident man. A very integrous man.

He also spoke about meeting with the Guptas. At that point in time, you will recall that the Guptas were all-powerful in SA. They had quite a lot of business interests. They were very close to Jacob Zuma and they also had the ability to have meetings with Cabinet Ministers. He apologised today for that.

I don’t really think he’s got much to apologise for but it’s not for me to say. It’s for the public of South Africa to say whether or not they feel that it was inappropriate for him to meet with the Guptas.

The reason I don’t think he’s got anything to apologise for is he didn’t do anything. He wasn’t coerced into anything. He didn’t give them anything that they wanted and as a consequence of that, Nene has come through, in my opinion, this whole saga, with an enhanced reputation. And on top of that, the fact that he had the humility to appreciate that some people were unhappy that he met with the Guptas at that time, he had the humility to come out and say, he’s sorry. He’s really sorry that it is perceived in that way, and he learnt a good lesson. He should actually have taken someone along from the Department of Finance, which he generally did, to meetings. But in this case, he erred and he asked South African’s for forgiveness. He certainly has mine, for what it’s worth.

It’s interesting because there’ve been so few apologies and so many denials as the Guptas’ story has unfolded so, I think it does demonstrate a certain degree of class, if nothing else, that he actually, did apologised and acknowledged some impropriety in that.

But you’re right, you know, one of the dangers when public opinion swings as dramatically as it has around the Zuma administration, around the Guptas and around State Capture, one of the dangers is that a lot of people end up getting tarred with the brush, who maybe were more bystanders or who engaged in relatively innocent things that, in retrospect, bear a different interpretation.

I think it’s very important that we take this slowly and take it carefully, and make sure that everybody who ends up getting tarred with the Gupta brush deserves that tar and that we’re not just sweeping everybody into the same hat.

Yes, I met with Atul Gupta. I was trying to sell him my Moneyweb shares, and I spent maybe three hours with him, where he made certain offers to me. Not anything of impropriety. It was to do with do I want a television show and do I want to work with them, and do I want to do X, Y, and Z and then he’ll buy my shares from me? There was just no way that we were going to find common ground but this was a point in time that we didn’t really know what crooks they were. We had hints, we had suggestions but they weren’t as overtly crooked as we now know they really were.

But business people and politicians meet each other all the time and sometimes this holier than thou attitude of, oh, well, Nene should never have met with the Guptas when he did, whenever it was in 2015, because it was inappropriate. Well, should he not then be meeting with Mike Brown from Nedbank or with, perhaps, the head of ArcelorMittal or whoever he might be meeting with?

That’s part of his job. He is the Finance Minister. He needs to engage. He needs to know what’s going on. It is unfortunate that he engaged with the Guptas in their offices or their premises in Saxonwold but whatever. It’s just part of a normal, standard practice. We cannot believe that because someone is having a meeting with whomever that they’re crooked. I’ve had meetings with lots of crooked people in my life. It doesn’t mean I’ve done anything wrong as a consequence of it and even more so, you’ll find with the Finance Minister. He’s a good guy and he has great integrity.

There’s no way Allan Gray, for instance, would have him on the board if he wasn’t in that line. We know Allan Gray’s reputation. He was also very senior at Thebe Investments. That’s another organisation with a spotless record, on the integrity stakes. Why would they have Nene in their fold if he was a crook or if he had done anything untoward? He hasn’t and we, I think, are very fortunate to have him.

Let’s turn to some people that we’re a lot less fortunate to have, and that is the people at Steinhoff. Now, there was some interesting developments this week, specifically with Mattress Firm in the USA, do you want to walk us through a little bit about what’s happening there?

It actually happened this afternoon, Friday afternoon, Felicity. It’s the biggest, by far the biggest smash. Well, I guess there’s been so much bad news about Steinhoff that no one has really stopped and thought about the implications.

But in August 2016, just over two years ago, Markus Jooste bought this company for Steinhoff on the basis of a premium of 115% on the current share price. So, he overpaid. Well, there’s no doubt about that, but he paid $3.8bn. But the interesting part about this was to raise the money to sort out the balance sheet after the $3.8bn, he went to his mentor, Christo Wiese, and asked his mentor to put $1bn into – another $1bn – into the company, which Wiese did, using his existing shares in Steinhoff as security. And this Mattress Firm deal was the reason why Wiese lost his fortune.

It was also, today if you’re a Steinhoff shareholder, you have to ask yourself, if you have even an ounce of sympathy for Markus Jooste – what was the man doing spending $3.8bn, overpaying for a company, or paying double what the company wanted, when today the announcement came out that it’s in Chapter 11?

What that means is that it needs protection against creditors and if it wasn’t for the banks agreeing to pump in another $925m, it would be bust today.

So, that’s the essence of what’s happened – $3.8bn – ‘poof’ – has gone up in smoke. What does Steinhoff have out of this? Just over 50% of the equity they retain. They had to give away 49.9% of the equity in Mattress Firm. So, by Jooste’s old standards on what he paid, that is $1.9bn, supposedly, it was worth two years ago. They had to give that away to the banks just so the banks would lend them money.

Now, that is telling you that this is a company that is up a creek without a paddle, and the banks – the reason why they’re coming to the party and putting more money in or allowing more debt – which will have to be repaid as well, it’s not a gift – they are saying that, in this case, they can throw good money after the bad that’s there in the hope that they will rescue the debt that has been extended to Mattress Firm. If the banks weren’t owed anything by Mattress Firm you can be absolutely certain that that company would be in liquidation today.

It’s interesting, the US retail space is going through a lot of upheaval right now and this actually makes me think a bit about the Toys R Us bankruptcy. I don’t know if you know anything about that, but Toys R Us, the famous toy retailer, really experienced, in some ways, a similar thing.

There was a debt-funded buyout of Toys R Us shares a couple of years back – so, a very similar thing where a premium was paid for this company, financed by debt – and due to various factors, online retailing, and so on and so forth, there was a downturn and they couldn’t pay back the loans and Toys R Us had to enter Chapter 11 bankruptcy. But no banks rode to the rescue there. So, there’s just not going to be any Toys R Us stores anymore. It’s just interesting that we have this force against retail right now in the US., and then on top of this we’ve got all the malfeasance at Steinhoff. So, it’s really a perfect storm for any retailer in the US that was associated with Steinhoff. To me, it’s almost surprising that the banks are willing to go to bat for Mattress Firm, just given what’s been happening in the broader industry.

You’re so right, and in many ways the Steinhoff shareholders, I suppose, could feel relieved, and we saw the share price going up today – but I still can’t see why. I guess they must have thought that Mattress Firm was going to go completely insolvent. But when you’re giving away 50% of the business you may as well go now, because it’s going to take a long time, and the managers of that firm are going to be working for banks for years to repay the debt, to repay this additional debt that’s gone into it now before shareholders see anything.

But, on the surface, there is an asset that was bought for $4bn and it isn’t now worth nil. It’s worth something, supposedly, in the minds of the banks that are putting money into it.

But it is an interesting aside on this one. Mattress Firm in fact, was started by an entrepreneur from Durban, who went from South Africa to the US and built the biggest mattress retailer.

And I actually got hold of him very shortly after he’d done the deal with Jooste. I asked him if we could do an interview, as one does with South Africans who’ve done well in other parts of the world. I was quite surprised at the time, when he said to me, no, he would rather not. “Not now,” was his response. I guess that tells us that even from the beginning there was some disquiet in his mind about what, perhaps, he’d charged or what Jooste had paid for the company. You can’t help it if somebody comes and overpays you for an asset, if you’re the CEO of a public company. But, maybe he saw that there would be troubles down the road and he didn’t want to expose himself at that point. But it’s interesting, isn’t it?

Very interesting. I wonder if he was seeing the writing on the wall? One of the very big trends in mattresses in the US has been the advent of online mattress retailing of these memory foam mattresses. And it’s completely upended the market there. You can get a mattress that you would get instore for $3,000. You can get it online for say $600.

So, that industry in particular, is undergoing a huge amount of upheaval and I think that what was a very – and forgive the expression – ‘cushiony’ business for a long time, has now, suddenly, become very competitive. I wonder if he saw the writing on the wall and knew he was getting out when the getting was good?

He might well, and I think he’s banked the money. I’ll see if he’s ready to talk in a few weeks’ time. But Sean Summers, who was a former CEO of Pick ‘n Pay and worked with Markus Jooste, well he was employed by Steinhoff to look after the UK operations. He has been seconded by the Steinhoff team into Mattress Firm. I was trying to get hold of Sean today to find out more about this. But you can be sure that it’s going to get great support. He’s a fabulous guy, Sean, and he’s a very experienced businessman. So, if Mattress Firm can be rescued – they’ve got a good team there.

But your point is well made. The argument always was, the one sector of the retail market that isn’t going to be hurt is big items, like mattresses and furniture and so on, because you can’t really buy that, or Amazon isn’t really going to go into that area, where they’re going to put all these bulky products into their warehouses. Well, Amazon is not the only player in the online market, as you’ve just pointed out, and there are others who have targeted the area. Well, what was conventional wisdom a little while ago seems to be conventional foolishness right now.

Before we wrap-up, Alec, we’ve just got to quickly talk about another prominent South African-born businessman in the US, who’s really going for it this week and talk a little bit about Elon Musk’s tweet. Today, he called the Securities and Exchange Commission (SEC) the ‘Shortseller Enrichment Commission’ on Twitter, and really had a bit of a go at them. It’s just one thing after another with this man.

Do you think he’s on drugs? I’m really am seriously believing it now because that is not the actions of a sane man. He’s just done a settlement with the SEC, a settlement that has cost him $20m. And for many people, the belief is that he got off incredibly lightly. He can remain CEO of the company. He’s not allowed to remain chairman but that doesn’t really mean too much. But he’s got off and now he goes and tweaks the tiger’s tail. Why? What’s he…? With a tweet, which is achieving what? I’m really… Seriously, for the first time, I’m now thinking – I don’t think he’s all there anymore or he has to plead temporary insanity because this is not the actions of a sane person.

Not at all. One of his big investors, a big institutional holder of Tesla shares, actually tweeted in response and said, ‘Elon please. WTF? Please stop tweeting. If you need to vent you can call me and vent over the phone, but this is not the forum for it.’

Given the fact that one of the things that the SEC asked was for better control over his social media usage – this really just seems like a nuts kind of thing to do, and you do wonder how frustrating it must be for Tesla employees, who just want to get on with the job and have to just constantly be dealing with this disruption – in the form of a CEO, who just doesn’t know when to stop.

Yes, when I watched the videos of his girlfriend, she seems a little off the wall as well – Grimes. Maybe he’s trying to show that he too is unusual. But when you’ve got 22.5 million follows as he has, on Twitter, you’ve got to know that there’s a responsibility that comes with it. That’s great power, to have so many followers, but with great power comes great responsibility and I’m not so sure that that penny has dropped for Mr Musk yet.