Steinhoff, this company that was
worth R200-and-something billion
that just vanished
overnight almost.
And it's South Africa's
Enron. That's what it is.
Was I surprised?
Yes, because you don't think that a
company of that size and of that repute,
can crash so quickly.
Whatever he's got, he
should hand it over...
because it was ill-gotten gains.
He needs to pay the price.
I think he got addicted to the
lifestyle, the money, the fame.
Maybe it’s about too
fast, too furious
and too little accountability
and too little pushback.
How could one person do so much damage
and not be willing to be held accountable?
The loss is the loss of pension
moneys, of investments, huge amounts.
There is no foolproof protection
against a CEO who is a crook.
If you are going to achieve
success at all cost...
what about the cost? You know
what I mean? There is a cost.
It's people's lives.
There were just two things
he was interested in.
The one was his
business, Steinhoff,
and the other one
was horse racing.
Shockwaves in
corporate South Africa.
There were accounting
irregularities...
accounting irregularities...
Insider trading...
and possible tax fraud.
Earnings that do not exist.
The South Africa retail giant lost
billions from its market value
on the JSE and in Frankfurt.
Dark days lie ahead for Steinhoff
and its CEO, Markus Jooste.
Investors want answers.
Steinhoff's struggle is going to
go down African corporate history.
Jooste will also most likely
face criminal charges.
I never lied about the
activities of the company
as the allegation was made. Obviously
they're pointing fingers at me.
These things are never
a linear trajectory
where somebody sets out
to swindle the world.
One small mistake is made and then
rather than fess up and admit to it,
somebody makes that fatal
step at that pivotal moment
where they decide to cover it up
and the hole gets deeper and deeper.
And that's what happened in this case
with Steinhoff, the collapse of Steinhoff.
That happened with
Bernie Madoff.
It happened at Enron. It happened
in all the big companies.
It was a series of small
little decisions made
that ultimately led
to a giant crisis.
I've been a financial journalist for
a long time, two decades, pretty much.
I studied law.
I think you're all young and
idealistic in those days and you think,
you know, you’ll help society
and make things better and then
I realised that it's quite
a hierarchical industry
and it'll take forever to get
anything done. And I’d loved writing
and I thought that's a way to cover
stuff, to write about things in the world.
Hopefully make it better, see faster
change. And it was... it was fun.
And I got into business journalism
because I’ve always found it fascinating
to look at companies that are
misrepresenting the truth.
I think the media tends to focus
on holding politicians to account,
but very few people hold
corporations to account.
A lot of corporate leaders do things
that are completely outrageous.
But because so few people
study it and understand it,
they get away with a lot which
politicians don't get away with.
So I've always been drawn to the
stories of people like Markus Jooste.
For a journalist, this was
the story of a lifetime.
It was the sort of thing I felt
had to be put down in a book.
We're still covering the
Steinhoff story as it unfolds.
More and more evidence of shenanigans
are coming out almost every day.
The telephone number you called
is not available at the moment.
Please try again later.
I don't think he
answers anyone's calls.
I was a little worried
that he's gonna answer.
"Hello, Markus."
One of the guys I spoke to
told me that Markus was perfect
for the role he ended up as.
You take people who are born into
relatively poor surroundings,
who are ambitious
and super smart,
and you've got the makings of somebody
who can do fantastic things in life.
And I think that was Markus's
upbringing in a nutshell.
His father worked at a
post office in Pretoria.
And Markus went to a great school,
Affies, Afrikaanse Hoër Seunskool.
Markus, he was smart, but he
wasn't the smartest student around.
The way he tells it, his
father was super supportive,
was always there, would
help with the homework,
and it was quite a nurturing environment,
even if it wasn't the wealthiest.
Right next to the post office
was a betting shop, Tattersalls.
According to Markus, his dad would
give him money to go and place bets.
Set for the Turffontein
Classic, R500 000 at stake
and away they go.
My father was a very...
committed punter with horses
and when I grew up,
I regularly visited Tattersalls
with him on a Saturday to go racing.
In South Africa in those days you
still listened to the race on radio,
in the halls there. So
I grew up with that.
I think if you grow up poor
and you get caught up in the pageantry,
and the splendour and the pomp
of the horse racing industry
and then see the people who
dominate it as being almost royalty,
then it would be an aspiration to
rub shoulders with them one day.
Markus Jooste was one of the
great South African entrepreneurs
for everything that we knew.
He'd built a company from a very
small start, into a multinational.
This touched almost everybody
who's an investor
in this country.
Markus Jooste... What
is his greatest worry?
His worst worry would be ending
up in jail in South Africa.
- Long jail time.
- Mm.
That's Mr Joos-tee.
I guess being an entrepreneur myself, I
was attracted to that kind of personality
in that he could
teach you a lot.
Markus is very clever.
He's got his obvious deficiencies,
but being an idiot isn't one of them.
He went to the foremost Afrikaans
university in the country
and was accepted into arguably the most
desirable men’s residence at Stellenbosch.
There's been a book that
has been setting tongues
wagging in our country and starting
all kinds of furores and debates.
You may have heard about it, it's
called The Stellenbosch Mafia.
It's people who use their
expertise and influence
to the advantage of themselves
and the people in their networks.
Every one of us, we're
part of a network,
whether it is a school
network, a university network,
a network at work, at church,
or whatever the case may be.
And the networks in Stellenbosch
emanate from the schools,
emanate from the university and
residences at the university.
Going to school in Stellenbosch,
going to university in Stellenbosch,
you were always very much aware
of the wealth in the town.
And you were always very much aware of
certain companies’ influence in the town.
So Stellenbosch’s
role in the economy,
Stellenbosch’s role in
the Afrikaner economy
has always been
fascinating to me.
So Stellenbosch is one of the
oldest towns in South Africa.
It is situated around
50km outside of Cape Town.
It's surrounded by beautiful
mountains, scenery, vineyards.
It is home to one of South Africa's
most prestigious universities.
It's the place where
Afrikaner nationalism,
which led to apartheid
as an ideology
was born and refined.
And then, post 1994,
it's become a place where a lot
of millionaires have retreated to.
You know, it's so much
easier to do business
over a glass of chenin blanc three
o'clock on a Friday afternoon
before you go and watch the Stellenbosch
University rugby team play later at night,
to strike a deal there.
But it's also an example of a town
where, you know, the ultra-rich
co-exist with the ultra-poor.
So, the town of Stellenbosch
carries the very visible scars
of historical, racial
and economic segregation.
Jooste, he did come from
a privileged background.
He was part of the
elite at Stellenbosch.
He came into contact with
enormously successful individuals
who made it big later in life.
So, you know, it's not as if it's
a classic rags to riches story.
I met Markus Jooste
the first time in 1979.
We were starting at
Wilgenhof Residence.
So, Johann, I want to say thanks so much
for agreeing to speak to us about this.
So that particular time at Wilgenhof,
it was the late '70s, early '80s.
Can you perhaps sketch a portrait
of what the dynamics were?
Yes. There was of course the
initiation of first years
every year which, I guess, second years
and third years could participate in.
A bit of intimidation
and humiliation.
And I actually found some
photographs in one of my albums
I took about five photographs
in those three years.
Funny enough, in four of the five,
Markus Jooste was right in the middle.
He was quite actively involved in...
In helping to mete out the punishment.
Obviously the code in Wilgenhof
was, "You never speak out about it."
And up to this day,
most Wilgenhoffers probably adhere
to that code of not speaking out.
That was the culture of the time.
You just don't talk to anybody.
I never even talked to
my father about this.
I don't care much about that.
I mean, that's something of
my childhood, 40 years ago.
I mean, that code of not
speaking out is something that's,
you know, you can say is what happened
at Steinhoff for so many years.
Yeah, exactly. Exactly. There's
definitely a clear connection there.
Would it be fair to say it was
very much a hypermasculine culture
at Wilgenhof at the time?
There was a there was
definitely an element of...
what do they call nowadays?
"Toxic masculinity".
You have to be strong,
you know. You can't cry.
It was also not just because
we were full of adrenalin and so
on, but it was also the fact that
it was the peak of the
Afrikaner rule in South Africa.
Nobody ever questioned
your position on the top of this
sort of socio-economic ladder,
as unjustified as it was.
That kind of power which we
had as white, as Afrikaners,
in an Afrikaner, or a
white-dominated country,
that sort of did give you some kind of
sense of power, more than you deserve.
And, you know,
later on, I can presume that...
That Markus did carry that with him.
Certainly the people
who worked with Markus
would talk about, as
a business leader,
how he was not averse
to bullying either.
He would scream and shout, and
certainly would throw his weight around.
And it seems that there's a synchronicity
in the way he acted at Stellenbosch
and the way he'd later conduct
himself in the boardroom.
So, I got to know the
information around Markus Jooste
in more detail when
Rob Rose approached me
to get a more in-depth sense of who
Markus Jooste might actually be.
It's just always fascinated
me how some people could
cross the line in terms of
what we collectively agree on
in society as mores and norms.
It would seem that he
has a couple of masks.
Not only was he
financially savvy,
he also would've been able
to read people really well.
So his intelligence was
also a social intelligence
where in order to charm people,
he would've had to have a good read
on the person he was dealing with.
So, after studying at university,
Markus went to the Revenue Service.
That is one of the options you had.
Instead of doing national service
and fighting in the army
and going to the borders,
you could choose to work
at the Revenue Authority.
And I think that that gave him
great insights into how tax works
and loopholes in the way
that it’s structured.
Steinhoff famously
paid hardly any tax.
It was paying 14% tax at a time when
the country's tax rate was... was 28%,
which illustrates that Markus had a very
keen eye for how the tax authority worked.
And it would seem that that relates to his
early exposure to the revenue authority.
After that, he didn't want
to work for other people,
he wanted to own
his own business.
And that is how Markus Jooste got
involved in Gommagomma in Ga-Rankuwa...
what was considered
a homeland area,
in which the
apartheid government
designated tracts of really inhospitable
land to black South Africans.
The point about a homeland area
is it gave you massive tax
breaks for investing there.
Gommagomma at the time made
furniture, lounges, couches.
Gommagomma was a shambles,
to put it bluntly.
They had warehouses all
over the Ga-Rankuwa area
full of reject furniture,
which they hadn't written off.
And that's when I
met Markus Jooste.
What came across very
strongly was Markus Jooste.
He would be the kind of guy who
would always want to be in control.
I then continued to
build my business.
And we built the company up
into the largest case goods
manufacturer in the country.
Case goods is cabinet furniture.
Markus Jooste carried
on running Gommagomma.
I think it got into
even more difficulty.
So, I find the Steinhoff
story really fascinating.
It began with Bruno Steinhoff.
He's the guy who created this
company that we talk about now
that is synonymous with the word
"corporate corruption" in South Africa.
One apple a day!
- Hi, I'm Rob. We met a few years ago.
- Yes.
Bruno Steinhoff was born in
the Rhineland in Germany.
This is shortly before the w*r.
My parents, you know, were
farmers, and we were five boys.
And only one could
take over the farm,
and I made a business by myself.
It was, for me, absolute heaven.
The big customers
bought from me.
And so I developed very quickly
a very, very big business
and my competitors, they had
no chance for many years.
Part of the business was you would take
goods from East Germany, back then,
at the time of the Iron Curtain,
take goods from East Germany
and sell in West Germany,
and do these things that other
people weren't willing to do.
Was that part of
the success as well?
Absolutely.
I went always there in that direction
in Europe where nobody wants to go.
The wholesale, manufacturing
and logistics business
was founded by Bruno Steinhoff.
With his entrepreneurial spirit
Bruno dared to cross many boundaries
to find value and
quality products
in places where very
few were prepared to go.
The Steinhoff strategy of
sourcing furniture from the East
to sell into a discount market
in the West, proved successful.
So, I had productions
in all East Europe.
I was then later in China,
I bought furniture in China.
I was looking to
increase the business,
to go in markets
where nobody was
and to see and to
find out with my nose,
"Where can we make in the
future more business?"
So I went to South Africa.
So from there, what happened is he met
this businessman called Claas Daun.
Claas Daun comes
to him and says,
"I've met this fantastically
smart accountant in South Africa
called Markus Jooste."
I thought that Markus
is a very clever man.
And I saw in South Africa
a lot of opportunities
to make a new business.
And Markus talked with me very, very open
and I had a good relationship with him.
And I think we
were good friends.
And I saw him as a son. Yes.
I had a good feeling
with Markus, very good.
They decide to merge
Gommagomma with Steinhoff.
This can be Steinhoff in Africa.
Foreign investment opportunities
presented themselves
and encouraged by the political
change in South Africa,
Claas Daun orchestrated the partnership
between Steinhoff Europe and Gommagomma,
establishing
Steinhoff Furniture.
Steinhoff Europe and
Steinhoff Africa consolidated.
A new era had begun.
Bruno was a very tactile
individual. He understood furniture.
He understood tangibles.
Markus was a smart financier.
He understood accounting, he understood
the finance side of the business.
So he believed that with
Markus's financial background
and his strategic nous, they’d be able
to do something more with Steinhoff,
to create the modern company
we now know as Steinhoff.
The business model
appears very sound.
We make cheap furniture,
or buy cheap furniture,
and sell it expensive
into expensive markets.
Anybody can see there's a
great arbitrage opportunity.
If you can make something in South
Africa and sell it into Europe in euros
or Britain in pounds, there
has to be a good margin to it.
The fact that we are concentrating
on the discount sector of the market
has certainly benefitted us rather than
the upper end or luxury end of the market
in our type of category.
Therefore, we are quite confident that we
can continue the same type of euro growth
that we've seen during the past
year into the new financial year.
Big economies going
through difficult times...
Not a bad time to maybe invest.
So, Bruno found Markus
a compelling individual,
and throughout the years he'd
become closer and closer to Markus
and the trust grew
immensely between the two.
Which is why he felt the
betrayal was so much more acute,
because it was almost as if you’re
betrayed by your own family.
Right throughout, Markus would
help him manage his money,
he would help him in
so many other facets.
At his 80th birthday in Westerstede
shortly before Steinhoff imploded,
it was Markus who Bruno asked to
come and give the main speech.
Which is why a week later,
when it all came crashing down,
he felt the betrayal more acutely
than, I think, anyone else felt it.
What a difference a day
on the markets can make.
Just ask Steinhoff
International.
The South African retail giant
lost billions from its market value
on the JSE and in Frankfurt,
after its CEO, Markus
Jooste, quit under a cloud.
It's a story that could have catastrophic
consequences for corporates across Africa.
But just how did Steinhoff
manage to pull a fast one
over investors for so long?
Steinhoff decides it
needs money to expand.
So they debate what to do, and
one of the solutions they decide
is listing on the JSE,
Johannesburg Stock Exchange.
Which essentially
allows you capital,
and it also brings you to the
attention of numerous investors.
That's when the pension
funds get involved.
They buy shares in it when
it publicly debuts on the JSE
at about R4 a share,
I think, at the time.
That's when the company
becomes a public entity.
That's when it becomes
more well-known.
Its name is now in the pages
of the daily newspapers.
And then Markus Jooste becomes a
feature of the corporate landscape.
We had waited and waited
for a music centre.
Only available at
PEP and Ackermans.
Incredible Sensei Hi-Fi with...
Your Two Year Guarantee store.
Most of our businesses have
also had resilient performances.
I mean, the UK did
well. So it shows
that that mass discount
model is working.
When you look back on it
and you were analysing it
and you were saying, "How
did it grow so rapidly?"
Well, he was always very focused,
very meticulous, very driven.
He knew where he was going and the guy
was real lucky for a long period of time.
For instance his
purchase of Pat Cornick,
which is a very important part
in the whole Steinhoff story.
Steinhoff was able to get them at
an absolute bargain basement price.
They started talking to me
about the possibility of
merging the companies.
It would be a merger between Steinhoff
South African operations and our company.
Bruno Steinhoff was
there. I met him.
I have great admiration for Bruno
Steinhoff and what he built.
And we came to an agreement
which we shook hands on,
that we would pursue it
on the basis that we would
have an exchange of shares.
And we would swap two shares of
Steinhoff for one of our shares
because our value of
our company was higher.
We're going to be hearing quite a lot
of financial jargon as we go along.
So let's break down
some of those terms.
When a company wants to buy assets,
it could do so in a few ways.
It could pay cash, use debt,
or it could issue its own
shares as compensation.
Those who receive these shares
become minority shareholders
in the acquiring company.
It's a cheap way of doing business,
especially if the share price is high.
And this is how Steinhoff
did most of its deals.
As long as the value of those
Steinhoff shares keeps going up,
everyone is happy
with the transaction.
But if the shares should lose
value by 97%, in Steinhoff's case,
they become virtually worthless and
the people who took them as payment
incur massive losses.
But the story is far from over.
We will continue to follow the
developments of what has been dubbed
South Africa's biggest
corporate disaster ever.
From myself, Fifi
Peters, it's bye for now.
I was then called
to another meeting
and told that the
2:1 share ratio
would not work.
And that it would have
to be on a 1:1 basis.
One of the conditions was the
fact that I would be appointed
the CEO of the South African operations,
and they reneged on that as well.
In my mind, it became
a hostile takeover
because I did not want
to proceed on that basis.
And I tried to get out of the deal,
but it was too far gone and I couldn't.
So the merger continued.
Do you feel that you were
screwed over by Markus Jooste?
I was screwed over by Markus
Jooste. There's no doubt.
And I decided that
was it. I was out.
Markus was that kind of person,
somebody who wanted
to win at all costs.
He wanted to be the Elon Musk of our
time, to be the Bill Gates of our time.
He wanted to be somebody whose
legacy was unquestionable.
The Gommagomma Group, as we started
out as, was a very small entity,
almost like a fly on the wall,
really would bother nobody.
But the acquisition of
Pat Cornick was basically
like a fly swallowing, you
know, a bird. It was really big.
Bringing together manufacturers was
critical, was good, important and timely.
I particularly went into
business because of Thabo Mbeki.
Thabo Mbeki called upon black
South Africans to go into business
so that we can empower those who
were previously disadvantaged.
And when I joined Steinhoff,
I was very much still
an activist in a sense.
And I went in there,
idealistically thinking,
we're going to contribute to
building a new South Africa.
I was, and I admit this,
personally benefitting, so
I was growing as a person.
I was growing financially.
I was, you know... There was
a period of growth for me,
a very important period
of growth in Steinhoff.
And so while that lasted,
I suppose I was happy.
Yeah look, Markus was
inspirational in many ways.
I mean, I looked up
to him for many years
as being somebody who
is completely focused
and who was obviously, from where
I was sitting, achieving things.
And the nature of authority is,
those at the top of the pyramid
set the culture in many ways.
One of the stories about the culture
of Steinhoff at the time was trust.
Everything was about trust.
Deals were done on a handshake.
They were not this massive volume of
paper that you get with most transactions.
The insiders talk about how trust was
the most fundamental part of the company.
And that's partly why the
relationship with Bruno and Markus
was formed on this trust.
It wasn't one where you'd go and check
the documents and emails you have
to see if this had
been signed or not.
So, the game changes for Steinhoff.
They decide that conventionally
they've been making
furniture through Gommagomma.
What they decide now is that
it might be an opportune time
to own the entire supply chain.
It wants to have forests that you
can use the wood for the furniture.
It wants to own the supply chain
that delivers that furniture
to people and the retail shops.
That's ultimately the goal.
Steinhoff was always the stock
that... We don't understand it.
When we did an analysis
of their share options,
we never thought it, um...
it's a good quality business.
One of the things we observed from
our side was the low tax rates.
In the 2016 annual report,
Markus Jooste writes that the
tax rate will remain around 15%.
Now, if you're a company operating
in the 28% tax jurisdiction,
how are you able to maintain a
15% tax rate on an annual basis?
So, these are some of the
issues that shareholders,
in South Africa and elsewhere in the
world, need to ask questions about.
The manufacturing, sourcing,
and logistics business that was founded 50
years ago is now part of a listed group.
Its entrenched global presence
still benefits greatly
from the diversified vertical
integration strategy.
To manufacture and source furniture
and homeware from low-cost countries
and to sell these products
to value-conscious consumers.
They came out with a story
of "vertical integration".
Because they were going sideways,
and they were dabbling in this.
And for the first
time it sounded to us
that they are finally addressing one
of the big concerns that we had...
Execution and growth risk.
We felt they were
gonna address that now,
because now they're gonna manufacture,
transport, and retail, right?
And it kind of made sense.
We kind of allocated some capital,
but it was a significant underweight.
If the stock in a market that's
concentrated, like South Africa,
if the stock is not attractive,
or is average quality,
what we'd do is we'd hold
it at an underweight.
In the global markets
we're a bit more purist
because the depth and the
opportunities set is much bigger.
So if Steinhoff was operating
in the global setting,
we wouldn't even own that stock.
We had a small allocation
but never stepped it up.
He managed to spin the web
in such a complex way...
that it was just
extremely difficult
for people to understand exactly
what was going on, really.
Because of Markus Jooste’s incredible
ability to persuade people.
That's his biggest asset.
You know? I mean, let's face it, he
managed to persuade Christo Wiese.
When I looked
myself in the mirror
after the terrible
news from Steinhoff,
I decided I will have to find clear
guideposts to get through this one.
Number one, I don't
mourn the loss of money
because money you make, you can
lose and you can try to make again.
Secondly, I count my blessings.
And thirdly, I'm not going
to become a bitter person
because nobody wants
bitter people around them.
Camera B.
Can I call you Christo
during the interview?
Please, for heaven’s sake, Rob.
Can I ask, what were your first
interactions with Markus Jooste like?
I got to first know him in 1982
when he worked for a firm of
accountants who audited my books.
He was a clerk then
doing his articles,
and noticed him, that he
seemed like a bright young guy.
And then...
I never saw him again
until, I think, 2006.
Christo Wiese, at some stage at
the height of Steinhoff’s prowess
was the wealthiest
person in the country.
He was part of the Bloomberg
Billionaires Index.
Do you know within the closest
billion just how wealthy you are?
I have no idea because my experience
has been that generally people
who know how much they’re worth,
are not worth a hell of a lot.
Were you born into
a commercial family?
Yeah. You know, a typical
small-town business family.
- Upington?
- Upington, yeah.
My dad owned a garage, and he
was also a Kalahari farmer,
which was quite typical
of Upington in those days.
Christo Wiese goes and studies
law at Stellenbosch University,
and he does very well.
And at the time, his family invests
in a small company called PEP.
PEP becomes a fantastic
success story.
It sold to all races,
unusually at the time,
and it sold at a price that
many people just didn't.
I mean, you were buying
clothes for 99 cents.
It was a first real
low-cost discounter.
Well, it went on a very
aggressive expansion phase.
I joined the business
fulltime in 1967.
Christo goes on to be one of the
founding presences at Shoprite.
And Shoprite, today, is this
massive multi-billion rand,
largest supermarket in Africa.
And Christo Wiese was seen
as the guy you followed,
he was the Warren Buffett of
South Africa to some extent.
I always tell people, one
wine estate is one too many...
To have two is close
to a nightmare.
So Markus Jooste managed to
woo Christo into Steinhoff
by essentially saying he would
buy Lanzerac from Christo.
- It was the incident with Lanzerac...
- Yeah.
That's how you first got
involved with Steinhoff?
- That's right.
- Could you describe how that happened?
I told him that I
wanted to sell Lanzerac.
And he said, "But
I'll buy it from you."
"Great. Let's do a deal."
And he said, "But I can't pay you cash,
but I'll pay you with Steinhoff shares."
And suddenly I became a
fairly large shareholder.
In fact, if memory serves,
apart from the institutions,
I was the second largest
individual shareholder.
They then said, well, I'm
such a large shareholder...
"they" being the
executive in Steinhoff,
they would like to invite me to
become a member of the board.
And that's how I got
on the board in 2013.
His relationship with
Markus grew from that point.
It was almost as if Markus had
groomed Christo for this role
and wanted to bring him in.
Markus only had about 4% of the shares,
but he acted as if it was his company.
It was his fiefdom.
And he actually appointed
the board members.
So, typically you would
have a strong chairman,
the chairman would have
a nomination committee,
and they would then actually
go and recruit board members.
In Steinhoff's case, it
didn't work like that.
Markus hand-picked the board members, and
obviously lured them for money and fame.
Not that many of them
actually needed the money,
but people wanted to be
associated with success.
You look at the
board of Steinhoff...
Some of the most eminent, successful
people in South African business
were on that board
and for a long time.
Markus was able to attract
some really, really serious
guys onto his board.
We mustn't forget, the former
CEO of Sanlam, Dr Johan van Zyl,
was on his board.
Dr Len Konar, he was a
professor of accounting.
Steve Booysen, who in my brief
period in the corporate field,
I worked with at ABSA, and a very smart
guy who ran ABSA, who was ABSA’s CEO.
These were guys who knew their
way around a balance sheet
and certainly knew their
way around businesses.
The chief executive of a company
isn't a law unto himself.
He answers to the board.
And whatever the CEO does, needs
to be checked by the board.
And it's very clear in this
instance that that did not happen.
There was not a culture of the board
providing proper oversight of Jooste.
I think Jooste came from Johannesburg,
where he made all his money
and he had this enormous desire to
be part of the Stellenbosch society.
When he arrived in Stellenbosch, when
he moved Steinhoff's headquarters
down from the very unfashionable
Wynberg district in Johannesburg,
Jooste arrived with a lot of flash, a
lot of money, a lot of shimmering money.
And he immediately started to
try and establish his company
as part of the Stellenbosch set.
They immediately started to sponsor, for
example, the university's rugby club.
In fact, the South
African Sevens rugby team,
after winning the world
championship one year,
was given a bunch of
Steinhoff shares as a gift.
Markus, I think, some time ago
bought Dr Rupert's house in Hermanus,
and he eventually consolidated 14
plots and built himself a mansion.
They developed the whole
Jonkersdrift compound
where the entire, sort of,
Steinhoff senior management resided.
Big fancy head office.
Markus had invested hundreds
of millions of rands in horses.
All of a sudden, expensive
and very exclusive parties
started being held
at exclusive homes.
And even mid-level managers
were driven around Stellenbosch
in chauffeur-driven cars.
And certainly Jooste,
by all accounts,
as well as his minions and his enablers,
liked flashing around their money.
By and large, I think
Stellenbosch was very much taken
with the influx of Steinhoff money,
with what Jooste brought to the town.
I think they kind of grinned
and beared the crass way
in which he flaunted his money,
in which the Steinhoff people
went about indulging in town,
because they created wealth for
a lot of Stellenbosch people.
They didn't really query Jooste.
And even though he was
in some quarters regarded
as a boorish character, you know,
money papers over the cracks.
But then again, who did
question Steinhoff, you know?
Certainly not regulatory
authorities, certainly not his board,
certainly not his most significant
shareholders, locally and overseas.
If someone like that sweeps into town and
brings with him prosperity and wealth,
why would you question it?
I had a very negative view on
Steinhoff and others didn’t.
I acknowledge that it's
very easy to get sucked in.
It's very easy to drink the
Kool-Aid that gets put out there
by dominant CEOs
and good marketers.
Would you call yourself
a typical finance guy?
Yeah, I think that's an
interesting question.
I think what's very important
as an analyst is always to
question your assumptions
and question your views.
Look for evidence that
contradicts your view
rather than evidence
which supports it.
On that basis, I think I developed a
fairly healthy scepticism, not cynicism.
I think scepticism is good.
Many of the big investment banks
have analysts that cover companies
and tell investors and advise
people, "Is this fairly valued?
Is this overvalued? Should you buy the
shares? Should you not buy the shares?
Is it good value? Are you
gonna make money from this?"
So as an analyst I would attend
the investor presentations.
So, Markus Jooste’s precise forecasts as
to where margins would be, for example,
they made me wary.
Nobody knows what's going
to happen in their business.
And I couldn't believe
how confident he was.
Compared to the previous six months of the
same period of last year, with this year,
and you take the
average translation rate
that you used to convert our foreign
denominated earnings into rands.
Astute investors with the
information we provide can easily
do those sums if you have the time
and you are really interested.
Anyone who is
aggressive, who is...
dominant in terms of where
the company is going,
strategy, not allowing
different views...
I think one needs
to be wary of that.
Markus often was self-deprecating
at these presentations.
He would say things like, "I
don't understand accounting.
I'm not sure how this
was all put together."
But clearly we know that
that was not the case.
Within corporate culture,
there is a sense that a trace of
psychopathy, such as being charming,
being able to
manipulate situations,
wanting to win at all costs,
those traits are rewarded.
"Snakes in Suits" is a term
commonly used in psychology
to describe individuals
who commit criminal activities
in corporate settings
and have quite a lot of
psychopathic personality traits.
I guess anyone can handle
a non-venomous snake,
so I'm pretty comfortable
handling venomous snakes.
At the end of the day, it's about managing
the risk when you're handling them.
So, do you get the same kick
from venomous snakes
and dangerous CEOs?
I think you’re fishing...
Steinhoff was one of the few
companies that didn't take questions
after investor presentations.
This is fundamental to
understanding how a company works.
You have a
presentation, you say,
"This is what we're doing, ask us what
you want." Steinhoff didn't do that.
He knew the analysts by name,
and I think those were analysts
that were close to him.
I can say that my observation was that
his personality changed over time.
Especially when he started
operating in Europe.
He was a little more modest
and humble in the early years.
And over time he was quite...
I'd almost say, like,
c*ck. Like, really c*ck.
He used to wear ties, then he was no
longer wearing ties in those meetings.
He had a plan, and nobody
was gonna disturb him.
Nobody was gonna ask questions that may
suggest that this plan could go wrong.
He had a plan, and he
was going ahead with it.
At the investor presentations
I didn't stay long afterwards.
Often I would leave the minute
the presentation was over.
Most investor presentations
to analysts are...
followed by drinks
and snacks, etc.
And the little bit that I did
see, Markus would hold the floor
with a fairly wide
circle of people.
People would be drinking brandy,
they'd be drinking single malts.
They'd be hanging out with Markus
and essentially buying the narrative.
They were drinking the Kool-Aid
brandy of this particular event.
And it allowed people to
perhaps shelve a lot of their concerns
and buy into the cult of Markus.
But I think the boys club in Steinhoff is
something that needs to be pointed out.
This old boys club around
Steinhoff, you know,
separate from the Stellenbosch...
So-called Stellenbosch Mafia,
but inside of Steinhoff...
The way in which Jooste
was just trusted blindly,
and the way in which his
dealings went unquestioned.
For example, taking a whole
host of friends and...
and hangers-on and acolytes to the
2015 Rugby World Cup in London.
And having the company pay for
that and absolutely indulging
in, you know, some of the worst
excesses that you can on a rugby tour.
I think it shows a level of arrogance and
a belief in his own immortality almost.
And so, the culture was specifically
very patriarchal, very Afrikaner,
braaivleis and drinking,
and, you know,
"Boys, boys, boys..."
It was very misogynistic.
Women were often the target
of derogatory statements.
Women were not appreciated,
really, other than for their beauty
or for their legs, you know,
or for their blond hair.
So for somebody like me
who comes in with a...
shall I call it a progressive
sentiment, if you will...
it was very noticeable and
quite difficult to deal with.
Because now you're
in this culture,
and if you want to stay in the culture,
you've got to succumb to the culture.
They were the many, many hours
after hours and the braai sessions
and the drinking sessions where
we disagreed on political issues.
And it was quite clear that
Steinhoff was essentially...
a... dinosaur of the past walking
into the future, you know.
And it was always interesting for me
to figure out whether that culture
was going to survive into
an international arena.
So throughout Steinhoff's life
one of the horses at
the end of the trail
it was always chasing, was
IKEA, the Swedish company.
It was the largest furniture
retailer in Europe.
And right from the '70s and '80s,
Bruno Steinhoff would talk about IKEA.
This was the elusive Holy Grail
that Steinhoff was chasing,
and Markus had his sights
firmly set on IKEA.
They'd talk about it and sketch
how they were going to do it.
And that lay behind a lot of
the deals they did in Europe.
They brought Conforama,
this French retail chain.
They bought Poco. They bought a
number of retailers in Europe,
all in the interests
of toppling IKEA.
It'd be that racehorse in the
European furniture industry
that was just a little bit faster,
that Markus couldn't quite catch.
Steinhoff is
expanding massively.
It's buying assets overseas,
it's buying assets locally.
And the acquisition trail, if
anything, was going to only hot up.
But a lot of analysts and a
lot of the investment community
in South Africa didn't
quite buy the story.
As the share price
rallied, we never upped it.
We did have some clients that
did question us quite heavily.
We were under enormous pressure.
In the end, we turned
around and said to clients,
instead of us saying, "We are
right, the market is wrong,"
we said, "We apologise."
We said, "Look, we maybe got it
wrong, but from our perspective
what we are seeing is that it
is not generating cashflows,
the debt is growing.
They are unable to
pay down the debt
because they have to keep
buying other businesses.
I can tell you there were
untold amounts of hours
that we spent stress
testing the model.
I mean, we were a
tiny asset manager,
so they kind of brushed us off.
We are just humble
people and we thought
the best thing is to not
get into an academic debate
or a debate with a client. We
apologised. And we stuck to our g*ns,
but it wasn't a comfortable
position. It was never comfortable.
There was a lot of pressure.
Right, so in December 2009
it is here at the Waterfront
that I met with Christo Wiese.
We had some serious
concerns with Steinhoff.
I'd done a lot of research on the company
over the preceding five or six years.
And we felt we needed
to convey these concerns
and hopefully
prevent him from...
from incurring any losses
by investing in Steinhoff.
- We spoke about Craig Butters.
- Yeah.
- Remember that meeting? What happened?
- Very well. Very well.
I mean we had a meeting at
the One&Only Hotel.
I listened to him very carefully,
he's an intelligent guy.
Appeared to have done
his homework very well.
He gives Christo Wiese
a 40-page slide pack
saying, "These are the reasons why
we're uncomfortable with Steinhoff."
And what Craig worked out which
was fundamental in Steinhoff
is that about 41% of the profits that
it would announce had come not from
actually doing sales and
putting money in the bank,
but from fancy
accounting tricks.
What it would do, what
a lot of companies do,
is they revalue things
in their portfolio.
They say, "The difference between
today I value it R1 billion,
tomorrow I value
it at R2 billion.
I'll take the R1 billion
difference into my profit and say,
'I've earned that this year.'"
That's an accounting
trick, not real cash flow.
It's not a fair reflection of
what your company is making.
I think it's important to emphasise
that if it were just one big issue,
then probably everybody would have spotted
it and had a negative view on Steinhoff.
There were a number of issues.
Some of them were red flags.
Some of them were key financial
and operating concerns
of a very serious
nature, in my view.
But you had to put all of these
together in order to come to the view,
So the question is
why it took so long for anyone to
question the Steinhoff narrative.
A lot of these analysts
sit inside investment banks
and investment banks
themselves earn a lot of money
by advising on
deals to companies.
So it isn't in their
interests, for the analyst,
to question the
companies too much.
And in the case of Steinhoff,
it was a company that was doing massive
deals all over the world the whole time.
I highlighted six
or seven key issues.
Firstly, banks were very,
very keen to finance Steinhoff
because they were so aggressive in the
market, and making these acquisitions.
But the debt is still there
and you still owe the money
to your banks and your
creditors and other lenders.
We highlighted a significant
number of transaction
with these unknown
private entities.
One company in particular that kept
rearing its head was Fihag Finanz.
Remember we talked about
how in the early 2000s
Steinhoff wanted to buy forests so
that it owned the whole value chain?
What happens is that Steinhoff
announces it's going to buy the forest
and then shortly afterwards decides,
"Actually, we don't want the forests."
But luckily enough, a third
company comes out of nowhere
a mysterious entity called Fihag
that decides to buy the forest
for what ultimately turned
out to be around R11 million.
And what this company will
do is lease it to Steinhoff.
And two years later
Steinhoff decides,
"Actually, we do want
to own these forests,
so we will buy it from
Fihag for R149 million."
That's a massive
increase in value.
The question then
becomes, "Who owns Fihag?"
It's interesting,
because in 2011
SARS comes out with this
case involving Markus Jooste.
Suddenly the revelations of
the forest deal come out.
Ultimately, the
SA Revenue Service
traced the benefit in this
particular case to Markus Jooste.
It's a curious related-party
deal. How did this happen?
Companies do deals all the time.
Money flows from one company
to another, and that's fine...
as long as you know who all
the parties involved are.
The thing is, the CEO
of an acquiring company
might also be a shareholder
in the disposing company.
And if he doesn't disclose
it, he might use his influence
to inflate the sale price so that
he profits from the transaction.
He would be what is known
as a "related party",
It could be that additional
shell companies are used
so that it's very difficult to track
who the real beneficiaries are.
This type of related-party
transaction is how Markus Jooste
made millions from the 2001 sale
of Knysna forests to Steinhoff
which the tax authorities
exposed in 2011.
So during the meeting,
I thought he asked very interesting
and insightful questions.
He was extremely grateful.
He gave me his insights.
He gave me the reasons why he
was thinking of doing something,
and I thought he'd got it.
But at the end of the
meeting with Craig Butters,
it turned out Christo
just wasn't convinced.
I then went and read ten
other analysts' reports
with a completely different
slant and none of this.
I then went on the board having
this at the back of my mind,
and I thought I'd sit there
and see how things operate.
That is the extent to which
I will do a due diligence.
In many cases, external analysts
would even mock me for my view.
I sort of became a
little bit of a joke
with this negative view, and the
Steinhoff share price was going up.
And for a long time it looked
like I was horribly wrong,
and analysts were not shy in telling
me that it seemed like I was wrong.
And Jooste always had an explanation,
you know, right to the last minute,
that it was all tax problems...
And because he operates
in different jurisdictions
with different laws and different
accounting standards, etc., etc.
"And these people just
don't understand it."
Yeah, because, Rob, you
know as well as I do
that if you have 20 analysts,
you'll have 21 views, you know.
Some people like, dislike, don't
understand the business, whatever it is.
Then, in 2014, the big
fantastic deal for Steinhoff...
Steinhoff decided to
do a deal to buy PEP.
R63 billion, massive deal in the
corporate landscape, the retail landscape.
So we are looking
forward to add Pepkor
into the Steinhoff family of retail
companies and it will certainly enhance
our value and discount model
throughout the world, in all the
territories where we operate.
I did the deal at, I think,
R52 a Steinhoff share.
Within a year or 18 months it
was R97, virtually doubled.
Because the businesses that I, or my
co-shareholders, put into Steinhoff,
are brilliant businesses.
If you have someone like
Christo Wiese on your board,
somebody who is the Midas of investments,
everything he touched turned to gold.
It'll confer a new
status on Steinhoff.
And Christo, I think,
bought Markus's idea
of this fantastic Pan-African
global European retail chain.
It fitted into Christo's
idea of consolidating assets.
As he was getting on a little, certainly
the feeling that I got from Markus's side,
was that Christo wanted his legacy in good
hands, and Markus was those good hands.
Markus, he managed Christo
unbelievably well. He really did.
And right up until the last minute,
right up until the last day...
Christo believed him.
Hi, everyone.
Thanks for tuning in to the CNBC Africa
special with myself, Fifi Peters.
For the next half hour, I'll be
speaking with Dr Christo Wiese.
I looked at Steinhoff with
its wide spread of interests,
with its very strong
balance sheet,
and a number of other factors, and thought
that by putting these businesses together,
we could create what...
we called a prospective
African champion.
In other words, an African retail
business that had become global.
I have to be honest, I was
absolutely flabbergasted.
I couldn't comprehend why, having
heard of all of these red flags,
all of these financial
and other concerns,
that he thought it was okay
to be invested in the company.
He got sucked in, I guess,
being so close to Markus Jooste.
With Markus, you talk
about the value of trust.
- Yeah.
- You obviously trusted him implicitly.
Had he done nothing to...
- to shake that impression?
- No, Never. Never.
He had a different
management style to mine,
but there was nothing to
indicate, not the slightest thing,
to indicate that he would
cut corners or do anything.
Nothing.
What I did notice was...
how he always found a
solution to a problem.
You know, he would really
think out of the box
and say, "But, why do it
this way and not that way?"
Yeah. That impressed me.
He certainly found a few alternative
solutions to accounting, I think.
That, of course, I
was not aware of.
Steinhoff is a vertical
integrated retailer
operating worldwide
throughout Europe,
Eastern Europe, the
Pacific Rim and Africa.
And we continue to grow our
retail footprint throughout Europe
and Eastern Europe on a
very aggressive basis.
We look forward to the New Year
with lots of exciting developments
in France, in Germany, and in
all the territories of the world
where we operate with new opportunities
to continue to increase our footprint.
Steinhoff was considered a safe bet if
you were playing on the stock market.
People were talking about "Steinies"
as shorthand for Steinhoff shares.
And the talk in Stellenbosch
for many years was,
"How many 'Steinies'
do you have?"
"How does your 'Steinie'
portfolio look?"
"You know, I've bought another
couple of 'Steinie' shares."
And a lot of young graduates
wanted to go and work at Steinhoff.
It was this modern...
very rich, multinational conglomerate
established in Stellenbosch.
My involvement with Steinhoff
was sometime in May 2015.
When Markus called me fairly
out of the blue and says,
"I've got a deal for you."
And on the 25th of May, 2015,
he strided into my office
with his slightly built-up shoes and
his tailored jacket, all confident.
I've known Markus
since university...
and I'm on record to say that
he's a bit of a sneaky character.
And, I mean there are a couple sort
of, I think, truisms in investments.
Never invest in aeroplane companies,
never into furniture manufacturers.
And I was quite,
sort of, sceptical.
So he was actually quite upset with me
that the big Markus Jooste from Pretoria
couldn't get an audience with
Coronation Fund Managers.
So that's how our
relationship at the time was.
He says, "Thys, we currently,
as Steinhoff, own 20% in PSG,
and if you and two other investors
swap your PSGs for Steinhoff
we'll earn 25%, we'll
get a tax benefit.
I then swapped my
PSGs for Steinhoff.
That's how I became involved,
not as a director, not as an executive,
but as an investor in Steinhoff.
You know, it's interesting...
With the benefit of hindsight,
we are all very clever.
But for every one red flag, there
were at least 100 green flags.
It's the end of the year Steinhoff
decides it is going to list
in Frankfurt on
the stock exchange.
They'd just bought PEP, they have
the legitimacy of Christo on board
and thought it was time
to ramp up the story.
I did never know, really, what
is a listed company in Frankfurt.
I never learned that.
But Markus told me, some
other people told me,
that we can get via a listing
more money for expansions.
It's a deal that will ultimately
help put them on the global stage.
It'll bring them to the
attention of overseas investors,
and it's one step towards
becoming the next IKEA.
But days before it lists the German police
pitch up at Steinhoff's headquarters,
their European headquarters,
and raid the company.
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