Steinheist. Rob Rose
idea of earning “hard currencies” like the soon-to-be floated euro. That August, Jooste and his executives went on a roadshow with potential investors to Europe. The plan was to hire a bus, and drive fund managers and analysts around Eastern Europe, showing them the factories in Poland and the distribution warehouses in Germany. It was atrocious timing. That month, Russia’s economy cratered, after months of being under siege from currency speculators. On 13 August 1998, its stock market collapsed, the yields on its ruble-denominated bonds spiked to more than 200%, and its currency collapsed.26 “Russian officials were left with little choice. On August 17th, the government . . . devalued the ruble, defaulted on its domestic debt, halted payment on ruble-denominated debt, and declared a 90-day moratorium on payments by commercial banks to foreign creditors.”27 The problem for Steinhoff was that all emerging markets, particularly Brazil and Mexico, had been sucked into the Russian slipstream. In the space of a few weeks between June and August, the rand fell by 20% against the US dollar.28 As the rand bled, skittish New York investment firms dumped any shares they had in emerging markets like South Africa, causing share prices to tumble. As the icing on this disaster, by early September, two weeks before Steinhoff’s planned JSE debut, South African interest rates hit 25.5% – the highest they’d been since before democracy.
On that European roadshow, the analysts were on the phone the whole time to their HQs: should we ditch the trip and fly home? Should we cancel the commitments we’ve made to these Steinhoff guys? One of Steinhoff’s executives on the bus got word from back home: “There’s blood on the streets – don’t even think about it.”
When Jooste got back to South Africa, some of the funds that had agreed to put in money did indeed renege on their plans to invest. Jooste asked Claas Daun what he reckoned they should do. “Listen, if you’re ready, go for it. Now is as good a time as any,” he replied.29 So, Jooste’s team gritted their teeth, and kept going. It was the sort of kragdadigheid – set-jawed bloody-mindedness – that became synonymous with Steinhoff.
Some concessions were inevitable, though, given what had happened in Russia. Initially, Jooste had wanted to list Steinhoff’s shares at R5 apiece. But the bankers cut this back to R4 a share. In the end, Steinhoff listed 650m shares, which began trading at R4 a share that morning. By the time the company’s top brass went for a bang-up self-congratulatory lunch at Sandton’s Michelangelo Hotel, the price had hit R5. “It was a huge mind-shift,” says someone who worked there at the time. “It was exciting. We were going to be a name that was going to appear in the paper every day. Suddenly, a lot of people knew who Steinhoff was, and it was a proud moment.” The listing was a success, raising R520m – even if it fell short of the promises made.
In the prospectus, Steinhoff set out some optimistic forecasts for its following year. It projected it would make total sales of R2.79bn and profit of R199m. This was a little too starry-eyed: for that year, it actually clocked up sales of R2.75bn and profit of R182m.30
One of the more interesting insights from this first prospectus is that it’s clear that, right from the beginning, Steinhoff had set its stall to pay as little tax as it could get away with. For example, it boasted of how “the tax rate and investor-friendly tax policy currently available in Poland is one of the major reasons for Steinhoff’s expansion into that country”. Jooste, as one of the smartest guys in the room, with some experience of working in the bowels of the Revenue Service, wasn’t going to let the taxman take more than he was due.
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Nothing did more to fuel the cult of Markus Jooste than a series of fortuitous events in 1999 that led to Steinhoff’s first major deal: the stealthy takeover of Pat Cornick for an absolute steal. This is the story. In 1997, the 800-pound gorilla of the local business sector was South African Breweries (SAB), which had tentacles everywhere, from hotels (through Southern Sun) to food (in OK Bazaars) and fashion (Edgars). It also had interests in the furniture sector, through a company called Afcol, which was worth R2bn and which controlled about 40% of its market. At the time, Afcol was an impressive beast, containing the Transvaal Mattress Company (which produced the first Sealy Posturepedic mattress in the country in 1967), Edblo, Grafton Everest and others. But SAB was trying to slim down, so it put Afcol up for auction. Steinhoff put together a bid, delivering an offer for Afcol of R17.25 a share in a sealed envelope. As it turned out, that wasn’t rich enough for SAB, as a rival furniture company called Pat Cornick pitched up with an offer of R17.50 per share for Afcol. Everyone expected a knock-down punch-up for Afcol. But to everyone’s surprise, Steinhoff threw in the towel. “Claus Daun said that’s too much, and we walked away,” said Jooste later.
For Pat Cornick, it appeared to be a coup. With Afcol in its stable, Cornick instantly became the largest furniture manufacturer in the southern hemisphere. But Afcol, it turns out, was the straw Cornick shouldn’t have clutched at. For one thing, its American buyers stopped paying for the goods they were getting, leaving Afcol with R20m in bad debts. This meant that without any money coming in, the R158m that Cornick had borrowed to do the deal – which now had to be repaid – broke the camel’s back.
So, a year after his failed bid for Afcol, Jooste sensed blood in the water. Steinhoff swooped in, ostensibly as a white knight, offering R3.82 per share for all of Pat Cornick, plus Afcol. It was an offer of some chutzpah – less than a quarter of what Pat Cornick had paid just a few months before – but Jooste knew that Cornick had run out of options. Graham Theobald, who was the executive chairman of Cornick at the time, recounts how the well-connected head of a chain of retail stores, David Sussman, suggested he approach Markus about doing some kind of deal to save the company.31 “I met with Bruno Steinhoff and Claas Daun, and we agreed on a rough template for a merger: we’d get two shares for every one we’d put in,” he says. “Steinhoff was quite small in South Africa in those days, whereas Cornick was pretty big, so this would have given them the scale they needed.”
Sussman, who’d acted as the intermediary, was a big shot in the furniture industry back then. A tall and blunt hard-nosed retailer, he’d started in the furniture industry as a warehouse clerk at the Joshua Doore chain of stores. Joshua Doore’s slogan was “You’ve got an uncle in the furniture business”, and Sussman would end up as that uncle. In 1983, he founded JD Group when he opened two Price ’n Pride stores. But within a few years, Sussman had worked his way into opening plenty more brands and 600 stores. His network, by the late 1990s, included discount stores Bradlows, Russells and, somewhat ironically considering it’s where he got his start, Joshua Doore. The point is that the JD Group was, at the time, Cornick’s biggest buyer. But Sussman’s loyalties were divided, as he was also an enthusiastic supporter of Markus Jooste. Sussman would later describe his relationship with Markus in this way: “From day one, it was a very close relationship, and of course, we wanted him to succeed – over and above that personal relationship and that chemistry.”
In 2007, Steinhoff first tried to merge with JD Group, but that failed. There were then a series of deals, which led to Steinhoff taking control of JD Group. It seemed predestined. But back in 1997, what happened is that at the last minute, Steinhoff altered the ratio, so that Cornick would only get one share, in exchange for every share they put in. All of a sudden, at the eleventh hour, it turned out that they’d be getting 50% less than they’d expected. “I tried to get out of it after they changed the terms, but it was too late – they’d already sold it to the shareholders,” says Theobald. “The idea was that I’d take over as CEO of the local business, but the way they’d changed the deal left such a bad taste that on the day I was meant to move into their offices, I resigned and left.”32
In every sense, the Cornick takeover was a typical Markus deal: the purchase of a struggling business, done on the fly with just a handshake, the price paid for by not using cash, but rather Steinhoff’s shares. Significantly, there was hardly a due diligence or thousand-page lawyer’s document in sight. Jooste had done it on the basis of his instinct. “The top entrepreneurs are all successful today, because they do move quickly,” said Jooste. “I think, if you’ve lived and worked with a guy like Claas, who set this example of listening, thinking and making decisions – and not wanting a due diligence and big books by auditors and big reports, to basically cover your arse.”33
More than anything else, this deal was the making of the