The long-standing international investor action against Steinhoff International appears to be coming to a conclusion. After years of back-and-forth legal jockeying – including a 27 July 2020 statement by Steinhoff to resolve the ongoing complex legal proceedings – a tentative settlement was recently reached, with investor payouts possibly reaching a sum of €480.8 million (USD $585.2 million).
Investor eligibility will likely include those that 1) purchased Steinhoff’s stock via the Johannesburg Stock Exchange or the Frankfurt Stock Exchange between 2 March 2009 through 5 December 2017 (and continued to hold such shares on 5 December 2017); or 2) bought shares before 2 March 2009 (and still held those shares on 5 December 2017); and 3) file a claim to validate either (1) or (2).
Concerns of alleged fraud began when the South African retailer’s auditor, Deloitte, discovered irregularities during its annual audit in 2017. The Big 4 accounting firm refused to sign-off on Steinhoff’s accounts in late 2017, leading to a large stock price decline and the resignation of then CEO Markus Jooste. At the time, Mr. Jooste was known to be one of South Africa’s richest individuals, worth a reported USD $400 million.
At the bottom of the market for Steinhoff, the stock dropped as much as 85%, eliminating €10 billion of the company’s market value. The accounting improprieties initially led to 11 different class & group actions filed against Steinhoff… including nine in the Netherlands, one in Germany, and the first-ever investor class action in South Africa.
Deloitte had been auditing Steinhoff for many years, initially in South Africa and then from Europe after the company moved its primary stock listing to Germany. Deloitte claims to have been “deliberately misled” by Steinhoff via a “complex management fraud.” In the probe following the scandal, a new independent auditor, PwC, exposed €6.5 billion of irregular transactions between Steinhoff and eight different firms between the years 2009 and 2017.
The Steinhoff Group Settlement will be implemented through proceedings in the Netherlands for Steinhoff International Holdings N.V. and proceedings in South Africa for Steinhoff International Holdings Proprietary Limited. The Steinhoff Group Settlement is subject to both schemes becoming effective. Investors of Steinhoff were recently allowed to participate in the approval vote for both the South African and Dutch actions.
The €480.8 million settlement will likely be paid as follows…
- €370 million from Steinhoff
- €55.3 million from Deloitte
- €55.5 million from a group of D&O insurers
Once this action is officially resolved and approved by the required parties, the settlement will rank within the top five largest non-North American investor-related settlements of all-time. The only two settlements of greater value outside of North America include Ageas (f/k/a Fortis) for €1.3 billion and The Royal Bank of Scotland Group for £800 million. The top five largest non-North American settlements include:
|Ageas SA (f/k/a Fortis S.A.||$1,542,014,910||Netherlands||2018|
|Royal Bank of Scotland||$1,018,320,000||United Kingdom||2016|
|Steinhoff International||$585,200,200||Netherlands / South Africa||2021|
|Royal Dutch Petroleum||$389,072,515||Netherlands||2009|
*All amounts converted to U.S. Dollars at the time of settlement; the Steinhoff currency conversion is at the time of this article.
The above top five list assumes the Steinhoff Group Settlement will become official prior to year-end. Also of note, the Steinhoff action will become the first-ever investor settlement in South Africa.
ISS Securities Class Action Services will continue to closely monitor this action and report meaningful updates to its clients.
By Jeff Lubitz, Executive Director, and Grace Meyer, Research Specialist, ISS Securities Class Action Services