Steinhoff struggles to resolve claims after accounting scandal

Steinhoff International Holdings NV may soon release a revised proposal to resolve more than $8 billion of legal claims against the retailer after a previous deal recently fell through.

The company “is considering its options” after a South African court ruled on July 2 that the deal related to debt refinancing was void. Steinhoff still believes that “a global settlement is in the interest of all parties,” and will “strive to achieve one,” a spokesman said Wednesday by phone. This is expected to include a revised offer to be made shortly.

The legal claims were made against the retailer by investors and funders following an accounting scandal in 2017 that almost wiped out the company, leading to revelations that its profit had been artificially inflated by 106 billion rand ($7.4 billion) over more than a decade.

Dwayne Senior/Bloomberg

In the year since the original $1 billion proposal was announced, there have been efforts by various claimants to squeeze more out of the deal.

Steinhoff has managed to get most of the insurers that provided it director-liability policies and Deloitte LLP, the auditors at the time of the scandal, to throw more money into the pot for distribution among claimants. The Stellenbosch, South Africa-based company also had to get consent from its financial creditors for a further debt extension to at least mid-2023.

While the company has continued to navigate these challenges, the ruling has left Steinhoff with roughly three options: to appeal, which would likely take time Steinhoff doesn’t have; to liquidate more assets; or get lenders to agree to a larger settlement that would reduce their security and allow Steinhoff to offer more money to other claimants. Any decision could include a combination of these choices.

Steinhoff shares were 4.4% lower in Frankfurt as of 11:16 a.m. It’s been a volatile week for the stock, which climbed 18% on Wednesday following a 24% slump over Monday and Tuesday.

Steinhoff still has a number of profitable units and in June said it’s considering a public listing of the Fantastic Group, an Australian lower-priced furniture and bedding retailer. That would follow the Polish listing earlier this year of discount retailer Pepco Group NV. Its U.S. bedding chain Mattress Firm and Greenlit Brands helped Steinhoff narrow losses in the six months through March.

“The ruling is forcing Steinhoff back to the drawing board,” said David Shapiro, deputy chairman of Sasfin Securities in Johannesburg. “My concern is the only people going to get value out of the process is the lawyers.”