BUSINESS NEWS - It was a tense weekend for Christo Wiese, the chairman of Steinhoff International Holdings. Hunkered down at his holiday home in the harbour town of Yzerfontein, near Cape Town, he was barely off his phone.
The 77-year-old billionaire had sold his chain of clothing stores to Steinhoff, making him the largest shareholder. Now trouble was brewing. Auditors at Deloitte had refused to sign off on the annual accounts and days earlier asked Wiese if he knew that chief executive officer Markus Jooste had overseen years of fraud at the business.
Yet Wiese hoped disaster could be averted at the owner of French furniture retailer Conforama, Britain’s Poundland and Mattress Firm in the US Jooste was set to return from Germany early that Monday, December 4, 2017, bringing documents that he’d promised would alleviate the concerns. But revelations over the next 48 hours would leave the global retailing giant on the brink of collapse, wipe out some $13.7 billion of market value and tarnish the image of South African business.
Almost a year on, a long-awaited probe into Steinhoff’s books by auditors PwC is nearing completion, promising deeper insight into what misconduct occurred and who was responsible. Formal charges may follow against anyone implicated in wrongdoing, according to the South African police unit known as the Hawks. This account of the impending meltdown is based on numerous interviews over several months with people involved in the events who requested anonymity discussing private matters, as well as on testimony given at South African parliamentary hearings.
By early morning on that first Monday in December, Wiese had made the 90-minute trip from Yzerfontein to Steinhoff’s plush headquarters in Stellenbosch, a wealthy town nestled among vineyards. There he met Steve Booysen, the head of Steinhoff’s audit committee, and representatives of both Deloitte and PwC.
While they were waiting for Jooste to arrive, the first shock waves of the impending earthquake begin to ripple outward. The company announced that it would publish annual earnings on Wednesday, as scheduled, but with an important caveat: the results would be unaudited.
By lunchtime, Steinhoff shares had plunged by 10%.
Minutes after the statement was published, Wiese saw that he had a voice message from Jooste. The CEO had just landed and was going home to shower, and asked that auditors be lined up for an 11 a.m. meeting as he had the evidence that had been demanded. Dirk Schreiber, a German national and Steinhoff’s head of finance in Europe, would be joining him.
Shortly before 10 a.m., it was Booysen’s turn to hear from Jooste. He wasn’t yet on his way and was taking legal advice, the CEO said in a text message — which to Booysen’s mind suggested that the accounts did indeed mask financial wrongdoing. Sure enough, when the meeting time came, Jooste did not appear.
Neither Jooste nor his lawyer responded to requests for comment.
Chief financial officer Ben La Grange joined the increasingly anxious huddle that afternoon after presenting the audited results for Steinhoff’s spun-off African unit, which he led as CEO. He’d been summoned to a meeting at the offices over the weekend and shown Deloitte’s allegations of fraud. He’d said it was best to wait for Jooste to explain matters.
At about 5 p.m., Wiese got a call from a legal advisor asking if he was at Steinhoff’s offices and able to receive a visitor. On his arrival, the lawyer said Jooste was at his farm and in a bad state. He was refusing to see Wiese face to face and was offering his resignation. That’s when the billionaire realized that his worst fears were about to become a reality.
Earlier on Monday, Jooste had called La Grange and asked him to bring two other executives, Danie van der Merwe and Stehan Grobler, to meet him at Lanzerac, a winery, hotel and spa near his home that had formerly been owned by Wiese. At about 8 p.m., during a break from the audit committee meeting, they complied. Jooste looked shaken. He reiterated his plan to quit, but urged them to stay on and pledged to help sort it all out.
Back in the office, the audit committee carried on meeting until about 11 p.m. At that point Schreiber, who had arrived alone earlier in the day, made the stunning revelation that the entry of cash equivalents in the company accounts was incorrect and that the balance was overstated.
The next morning, Bruno Steinhoff and his daughter Angela arrived at Cape Town International Airport for the scheduled pre-results board meeting. Bruno, who founded the company in the 1960s, no longer had an operational role, but he and Angela each sat on the board and held stakes. Bruno had just seen Jooste at his 80th birthday party in Germany that weekend, and had no idea of what he was about to hear. With a sense of dread, Wiese met them at the office and told them what had happened. His warning that the value of their shares could be wiped out left Angela Kruger-Steinhoff visibly shaken.
Typically, the board meeting held before the release of annual results was lively as members debated dividends and planned for the year ahead. This time, when director Heather Sonn arrived, she looked around the boardroom and asked what was going on and said it looked like a funeral.
Wiese started the Tuesday meeting by bringing the board up to speed, then asked whether they should accept Jooste’s offer of resignation or ask him to sort out the shambles. The consensus was that Jooste should be asked to come in. At about 11 a.m., Wiese called him.
Jooste was with his lawyers in Cape Town and took the call. Wiese told him that whatever he had done was done, but that he could still try to save the company and come in to help sort out the mess. Jooste replied that he would be there in two to three hours. But once again he failed to show, and that call was the last time the two men spoke.
The board began preparing to announce that Steinhoff had appointed PwC to do a forensic audit and to line up lawyers and directors to steady the ship. At about 5 p.m., one director got a text message forwarded to him that appeared to have been authored by Jooste, saying he’d made some big mistakes and while he’d never meant to cause anyone harm, it was time for him to move on. Concern that word was leaking out increased their urgency to publish the statement.
At 9:44 p.m., in Germany, the company announced the investigation into accounting irregularities and Jooste’s resignation. The stock plunged 62% in Johannesburg at the start of trading. Wiese stepped down 10 days later, replaced as non-executive chairman by Sonn, a Steinhoff director and daughter of a former South African ambassador to the US Earlier this year, she likened the embattled retailer to a burning building.
In the nearly 12 months since the crisis began, Steinhoff has sold assets, suspended executives, declared Mattress Firm bankrupt, closed stores and negotiated payment delays with bondholders and lenders — all while under investigation by regulators. Meanwhile, lawsuits have piled up across three countries, including a R59 billion claim by former chairman Wiese.