Steinhoff’s Settlement Puzzle Still Missing a Few Key Pieces

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Pulling together a settlement offer for the 90,000 shareholders who lost out when an accounting scandal almost destroyed Steinhoff International Holdings NV in December 2017 may be Chief Executive Officer Louis du Preez’s biggest feat.

Investors will soon learn if he can get the final pieces of the puzzle to fit after the company proposed a settlement Monday.

It’s been a grueling yearlong process as the retailer searched to resolve the more than $8 billion of legal claims against it. With little cash to spare and the coronavirus hitting trade at its profitable operations -- as well as causing chaos in the rand-to-euro exchange rate -- there were times when finding a solution looked like a distant hope rather than any reality.

The retailer’s best chance at staving off corporate disaster now depends on whether claimants will accept about an eighth of what they asked for and end the disputes.

Steinhoff still needs to get consent from its financial creditors for a further debt extension to at least mid-2023. Ideally, Du Preez also wants the support of the majority of the litigants. Whether he gets it will determine if the settlement succeeds.

“We are not there yet,” Du Preez said in an interview. “But if someone said to me two-and-a-half years ago that we would be in a position to offer shareholders 960 million euros ($1.1 billion), I would have said that’s a fantastic deal. And I still think it is.”

Du Preez, a lawyer who joined Steinhoff in mid-2017 and has specialized in mergers and acquisitions and business rescue, led the crucial talks with creditors that secured a long-awaited restructuring agreement on about $10 billion of debt last year.

As part of that agreement, Steinhoff doesn’t have to pay principal and interest on its debt until December 2021. The CEO is now asking for a further two-year extension to ensure he can wrap up Steinhoff’s reorganization, as well as permission to use about 960 million euros in funding for the settlement.

The plan hinges on former Steinhoff Chairman Christo Wiese’s lawsuit being ironed out. He became the company’s largest shareholder when he sold Africa’s largest clothing chain, Pepkor Holdings, to Steinhoff in 2015 and has the biggest single claim.

Steinhoff has allocated about $573 million to address that. Still, a large part of Wiese’s suit is being challenged through an overlapping claim by a legal successor to a group of financial institutions, including Goldman Sachs Group Inc., Citigroup Inc. and Nomura Holdings Inc.

Wiese has said he sees these claims as baseless. But Du Preez said this will have to be “resolved one way or another,” for the settlement to proceed as there is effectively now a double claim against the company.

A few significant litigants have already pledged their support. A Dutch organization that filed a class-action lawsuit against Steinhoff in the Netherlands on Monday endorsed the offer and agreed to drop its claim.

Still, getting the deal finalized “is going to require some careful thought,” Du Preez said. One option it’s considering a so-called cramdown, which would help get past rejections of some of the litigants.

To settle, Steinhoff has also offered payment partly in Pepkor shares. That will reduce Steinhoff’s holding of the South African clothing retailer to 52%. Still, it sees Pepkor as a “strategic investment” and has no immediate plans to drop its majority stake, Du Preez said.

Steinhoff doesn’t expect to convince all litigants, though it’s hoping it can muster enough support.

“With the huge amount of people involved it will be difficult, if not near impossible, to get full consent,” the CEO said.

©2020 Bloomberg L.P.

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