The world is changing fast and to keep up you need local knowledge with global context.
Steinhoff’s R63bn acquisition of Pepkor today ranks as the biggest transaction in South African corporate history. But for CEO Markus Jooste it is just the start of an exciting new international chapter for what will be a R200bn group. In this special podcast, Jooste explains how the deal is the culmination of a long journey with billionaire entrepreneur Christo Wiese – a relationship which goes back to 1982 when Jooste did the audit on the Pepkor account. – AH
ALEC HOGG: This special podcast is brought to you by Sanlam Investments and it’s a huge day for Steinhoff. Markus Jooste, Chief Executive joins us from his office in Stellenbosch. Markus, how long have you been working on this transaction that you concluded today with Pepkor?
MARKUS JOOSTE: Hi, Alec. I’ve known Christo Wiese for many, many years and I know Pepkor specifically, well. In 1982 when I started my Article as a trainee accountant, Christo’s business was one of the first jobs that I worked on, so it’s a bit of déjà vu. As you know, Christo has been on our Board for a long time. He’s a big shareholder in Steinhoff and we consistently discussed the building of a South African mass discount chain that can compete in the global arena. It’s a vision, which both of us had for the future, so we’ve been working on this for a long time, Alec.
ALEC HOGG: I ask this for a couple of reasons. Firstly, the rights issue in July: you raised 18-billion and 15-billion is going to be going towards Brait in terms of this transaction (in cash). Was that part of the thinking at the time?
MARKUS JOOSTE: No Alec, at that stage the Pep transaction was not advanced at all in terms of getting close to a corporate transaction. As you know, the 18-billion we raised in July was part of our conditions with the South African Reserve Bank and the Treasury in order to repatriate all the money we took out of South Africa over all the years, in building the Group. It’s a total coincidence but it’s obviously fantastic for us that we could find a business of Pepkor’s quality to be able to apply the cash that is here in South Africa, for investment. It’s a huge amount of money and therefore, to have found such a quality asset is a big coup for us, Alec.
ALEC HOGG: So you’re going to be taking the South African cash and investing it in Pepkor.
MARKUS JOOSTE: Yes.
ALEC HOGG: And you said that Christo was already a big shareholder. I was having a look through the annual report and there, the shareholders are all in nominee companies: Nedcor Nominee, Standard Bank Nominee, and SE Nominees etcetera. How big was his shareholding before the transaction?
MARKUS JOOSTE: I’m speaking under correction Alec, but I think he owns about 45 or 46-million shares in Steinhoff.
ALEC HOGG: So now, with this transaction, that will take him to probably, your biggest shareholder.
MARKUS JOOSTE: Yes, he goes up to 850-million, to be the biggest shareholder in Steinhoff – yes.
ALEC HOGG: And that would give him well over 20 percent.
MARKUS JOOSTE: I think it’s just under 20 Alec, because you must remember the issue share capital now goes up with 800-million shares, so I think it’s roughly 19.9, or whatever the case might be, but it’s a huge compliment to Steinhoff for us to have the Wiese family investing nearly R45bn into the future of the company. That is a massive vote of confidence and something that doesn’t happen often.
ALEC HOGG: And you have to be close to the man to do a deal like this. I didn’t realise you go all the way back to 1982. Did you keep in touch over the years?
MARKUS JOOSTE: Throughout the years, he’s been a fantastic mentor for me during my whole career and I think the knowledge that Christo and Pieter Erasmus of Pepkor bring to the Steinhoff Executive with their retail knowledge, is just an enormous plus for us. In addition, to have both of them with a big investment in the company… Alec, that ties in, very much, with the philosophy of Bruno Steinhoff, the other Steinhoff members, and I. All of us have the majority of our wealth invested in the business and here we now have two guys who are putting billions into the company as well. That is what Steinhoff stands for as an entrepreneurial corporate business and I’m very delighted to have been able to pull this off.
ALEC HOGG: With lots of family interest, as well… The international side: up to now, you’ve been a furniture group. You’ve been chasing IKEA. Does it mean that you’re going to be chasing the big retail clothing operations as well?
MARKUS JOOSTE: Well, Pep is a big player in its own right in the global arena, but this puts us together onto a platform with this additional capital Alec, which we can probably… In terms of turnover and size, we will be one of the top ten retailers in the European arena. A company like IKEA, as you know, sells a lot of textile and apparel in any case, so it gives us an additional category with huge knowledge in order to compete further. There are many synergies between Pep and us, to explore all over the world such as Africa, the Pacific Rim, and of course, in Europe.
ALEC HOGG: As far as Africa’s concerned, the first thought that I had here was ‘watch out, Mr. Price’.
MARKUS JOOSTE: Look Alec, one never watches your competitors. Pep has been private for quite a number of years but if you look at Pep’s growth as soon as they went private in 2002, they went from an EBITDA of 200-million to well over four billion. The growth of Pep in itself is enormously impressive and I think I’m not here to compare the two companies. I think they are in slightly different positions, but I will say this: they are both great companies.
ALEC HOGG: As far as Europe is concerned, is there any integration possibility with Conforama?
MARKUS JOOSTE: Very much so, Alec. As you know, we have huge buildings throughout the whole of Europe whereby our properties that we own, all have between ten and 12,000m2. There’s lots of opportunity to give Pep, especially with their Pepkor brand that has done so phenomenally well in Poland and the Czech Republic so that we can roll that out in Europe for them, and assist them with that. There are many opportunities in many other countries in Eastern Europe as well where Steinhoff, through acquisition, has a huge footprint already.
ALEC HOGG: Now, a few years ago, (and I’m not sure if you remember it) you arranged for me to go and see your buying office in Shenzhen…very impressed at what you were doing then at that point, and I’m sure it’s developed much further as well. Are there those kinds of synergies that you can now bring together? In other words, buying not just furniture in China, but clothing too…
MARKUS JOOSTE: Well Alec, I remember that well and as you know, since that time we’ve merged the Conforama and Steinhoff offices whereby today, we have one of the biggest buying offices and personnel in China. Pep buys an enormous amount there. Both of us are just over $1bn, so the two together makes us an enormous force in that territory and there will be many synergies such as quality control, distribution, and back office processes that we can benefit from and this sale puts us into the Top 5 category of sourcing companies in the world, in that territory.
ALEC HOGG: It’s an extraordinary story. Are you having to pinch yourself sometimes in order to believe that it’s true?
MARKUS JOOSTE: Alec, I’m so scared that I’ll wake up and this was a dream.
ALEC HOGG: Well, it’s not a dream that you’re nearly a R200bn business, but it is extraordinary. Clearly, in South Africa there’s a different scale. You’re now playing in the big leagues in the international leagues. Are you anticipating that it’s going to be rocket fuel from here?
MARKUS JOOSTE: Look Alec, when you put two companies like Steinhoff and Pep together (although both are run pretty independently and we’re getting a fantastic management team with Pep, with Pieter Erasmus and his team), but we’re decentralised models so I don’t think there’ll be big disruptions. On the corporate side, we’ve started to analyse things that we can do together. We’re not going to rush into anything. I think it takes a bit of time to absorb a transaction. Alec, I think 65-billion transactions….I don’t have the knowledge but I would guess that if I think on the last years since I’ve been involved in the corporate world, it might be the biggest corporate transaction in the history of South Africa. It will take us a bit of time to settle this down, but as a combined Group and with 45-billion extra in capital… Of course, it makes anything in the world possible for us to do as a South African company playing in the global arena. It’s a fairy tale come true.
ALEC HOGG: And that’s really, the initiative here: to become big enough to play in the global arena.
MARKUS JOOSTE: Absolutely, Alec. I think we have good examples, such as SA Breweries that has made us, as South Africans, very proud. This transaction is again, showing that a South African company can go and play in that global arena. Steinhoff and Pep together are certainly in the Top 10 out there in the world, so we are very privileged and proud to be part of this.
ALEC HOGG: Are you expecting that Christo will have a bigger role to play now?
MARKUS JOOSTE: Look Alec, one of the things that was clearly part of this deal was the fact that Pieter and his team run Pepkor very independently. Christo’s value lies in his wisdom and his advice, and he does that very, very cleverly – to give you guidance in terms of what to do strategically, but he does not interfere with the day-to-day business at all.
ALEC HOGG: And the other obvious issue is that he’s a big shareholder (I think the controlling shareholder) of Shoprite. Is that in your future?
MARKUS JOOSTE: The field of Pepkor and Steinhoff had many synergies and common structures. I think the food industry is something totally different and we have not discussed it at this stage.
ALEC HOGG: What about Brait? We saw the share price of Brait reacting negatively today – dropping by 15 percent on news of this transaction.
MARKUS JOOSTE: I don’t want to comment on another company. I think what John Gnodde and his team have done at Brait during the last four or five years, is absolutely phenomenal. They’ve given shareholders a return, which I think very few companies on the JSE have been able to do since they bought the 37 percent in Pep, in 2010. They’ve given their shareholders and themselves a fantastic run on this. It’s easy to value companies and maybe say its worth more, but there’s always a price to realise it and to sell it. That’s why Alec, you’ll get people who say we’ve maybe paid a little bit too much. There you see there are people who say Brait sold for too little and that’s why Christo always says ‘a good deal is when all parties are slightly unhappy’.
ALEC HOGG: And Brait is going to be sitting on a lot of cash and a lot of Steinhoff shares. Are they likely to hold onto those?
MARKUS JOOSTE: They have joined our control pool, which is important for us to have put together so that if one day, they want to exit those shares… In terms of the pre-emptive, that there is a buyer for these shares and that it is part of the future block of South African Holdings – of the South African company – who wants to list it on foreign exchanges. Alec, it would be wrong for me to talk on Brait’s behalf because they’re a separate listed company. I have a lot of respect and faith in what John and his team have achieved and I’m really sure that they’re going to achieve new heights going forward, and they’ve done phenomenally well.
ALEC HOGG: But that’s also an important point and one that your good friend Jannie Mouton, learned the hard way – retaining control. In fact, that brought the two of you closer together, didn’t it? Is it something that you’re very keen to maintain?
MARKUS JOOSTE: I don’t think it’s so much a question of control, Alec. It’s a question of having right-minded people together because that solid standing together behind such a big corporate, just makes decision-making processes and strategic steps so much easier. The risk of execution is always better and if we look all over the world where there is strong family and/or corporate hold on companies, they tend to do better over long periods of time, than the purely corporate companies do. That’s just a personal opinion, though.
ALEC HOGG: What are you going to do tonight, to celebrate?
MARKUS JOOSTE: We are meeting at 18:00 in Cape Town with the entire Pepkor management and we are mixing the two cultures together so Alec, as always, it’s just work.
ALEC HOGG: But are you expecting that that cultural mix is going to be difficult, or not so?
MARKUS JOOSTE: Not at all. It’s very similar and we’ve known Pieter Erasmus for a long time. Many senior executives in Pepkor were with Danie and I at Stellenbosch, so I think it’s a very easy mix.
ALEC HOGG: So from now, absorbing, sitting back, and making sure that everything pulls cohesively, and then…?
MARKUS JOOSTE: Well Alec, as I said this gives us a platform to virtually, look at anything throughout the world. As I said, we’re not going to rush into anything. We will probably implement and close this transaction in February/March. We have the listing right after that, in Frankfurt so I pretty much have my days cut out for me from now until June next year, and then the financial year is over. Then we’ll start looking at how to leverage this huge discount retailer of the world into the future. You can imagine that for us, it’s an extremely exciting path, looking ahead.
ALEC HOGG: So it’s not a career, that’s ending. It’s actually, a career, which is beginning.
MARKUS JOOSTE: I think this is just the start of an entire new chapter, Alec.
ALEC HOGG: Markus Jooste is the Chief Executive of Steinhoff and this special podcast was brought to you by Sanlam Investments.
[There might be slight deviations from the interview in this transcript]
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