Steinhoff Duo's Firms Made Millions Trading Cheap JD Stock

(Bloomberg) -- Just a few years after being named head of the retailer that became Steinhoff International Holdings NV, Markus Jooste was involved in a series of complex trades in a smaller South African competitor that yielded a multimillion-dollar payday for companies linked to him and board member Claas Daun.

The businesses made a profit of 901 million rand ($67 million) selling JD Group Ltd. stock 14 years ago after buying in at a discount that wasn’t shared with other investors, according to company documents and court and regulatory filings. While Johannesburg Stock Exchange listing requirements dictated that all pricing information on transactions of that size had to be disclosed, JD Group’s then chief executive, David Sussman, says he’s sure all regulations were followed.

The deals happened at around the same time that companies linked to Jooste sold car-dealership properties and forestry plantations to Steinhoff for far more than market prices. Jooste quit on Dec. 5, 2017, the same day the company reported accounting irregularities that have since wiped 94 percent off the retailer’s value, and the company has asked the police to investigate him. Daun left the board in February.

Steinhoff, which now owns JD Group, has commissioned PricewaterhouseCoopers LLP to probe its finances, with a final report expected by the end of the year. It says restatements may have to go back at least as far as 2015. Steinhoff said it won’t comment on past transactions and relationships until the probe is complete. The JD Group trades, which date back more than a decade, don’t appear to have affected Steinhoff shareholders.

Jooste, who was appointed group managing director in 2000, set up agreements with Daun from 2002 that would result in JD Group’s takeover of Steinhoff’s money-losing rival Profurn Ltd. and the acquisition of JD Group shares at the discount, according to the documents.

Jooste’s lawyer Callie Albertyn didn’t respond to emails and messages left at his office. Daun didn’t respond to queries.

The dealing began in 2002, when FirstRand Ltd. executive Theunis Lategan asked Daun, once a director of Profurn, to help rescue the struggling retailer. The following year, JD Group took over Profurn.

Steinhoff Duo's Firms Made Millions Trading Cheap JD Stock

Following a 2002 rights offer by Profurn, underwritten by FirstRand, and its subsequent takeover by JD Group, FirstRand held 25 percent of JD Group’s shares with a cost basis of 14.17 rand a share -- compared with the 19.06 rand they averaged in 2002, according to data compiled by Bloomberg. Companies linked to Jooste and Daun bought the bulk of that stock from FirstRand at the discounted price of 14.17 and sold the shares for three times as much. Lategan referred queries to FirstRand.

“The discount is extraordinary,” Magda Wierzycka, CEO of Cape Town-based Sygnia Asset Management, said in an emailed response to questions.

It was a 17 percent discount to the shares’ closing price on that day in June 2002 and a 64 percent discount to JD Group’s price the day the transfer to an investment vehicle called Capstone 556 (Pty) Ltd. and Daun & Cie was completed, according to Bloomberg calculations. Capstone had Lategan on its board and its funding was overseen by Jooste.

FirstRand said it wasn’t under any obligation to disclose the price and that it had acted to save Profurn from collapse. The bank said it wasn’t involved in the later sale of JD Group shares by Jooste and Daun.

Capstone and Daun & Cie each sold 14 million JD Group shares at 42.50 rand a piece, generating a profit of 396.6 million rand for each company. Capstone then sold its remaining 3.5 million JD Group shares to Mayfair Speculators (Pty) Ltd., where Jooste was the sole director, for 45 rand a share.

Profit Made

Capstone’s two sets of share sales led to a 504.5 million-rand profit and when added to Daun & Cie’s takings, the total profit for the companies linked to Daun and Jooste was 901 million rand.

As with the entities involved in the car dealership properties and the forestry assets, Capstone was held through complicated structures that linked back to Fihag Finance Handels AG, the Swiss-based company that was initially controlled by Steinhoff founder Bruno Steinhoff, according to company filings. Fihag was also a major shareholder in Steinhoff International. While JD Group was taken over by Steinhoff in 2015, Capstone still exists and Stefan Potgieter, Jooste’s son-in-law, is now its only director, company filings show.

Fihag didn’t respond to requests for comment while Potgieter said he wasn’t party to the transactions.

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