When we posted this blog, the bets were still open if Braam van Huyssteen would be starting a rival company to Tekkie Town, which he just lost to Pepkor, or whether he will succeed in getting the company he founded nearly thirty years ago released from the sale to Steinhoff in 2016.
By the time you read this, developments in this Tekkie Town – STAR/Pepkor saga might have taken a completely different turn. During the past fortnight jolting revelations about this inter-company feud have been made public at a pace that makes the Steinhoff share fall seem in slow motion.
During the past fortnight Van Huyssteen says he was fired by Steinhoff Africa Retail (STAR) CEO Leon Lourens for speaking his mind. Now, they are communicating through lawyers. STAR said he resigned as chairman of the STAR Portfolio committee and EXCO member and was subsequently “relieved of his position as director and chair of speciality”. CEO Leon Lourens replaced him as the chairman of the Speciality Fashion and Footwear division, which comprises Tekkie Town, Shoe City, Dunns and Refinery.
But, whether he resigned or was pushed, what he calls a culture difference cost Van Huyssteen his business, his job and R1.8-bn, he told Moneyweb.
What probably hurt most, was that that he is now cut him off from Tekkie Town, the company he founded in 1989 in Mossel Bay as Sport City and then nurtured and grew into the countrywide Tekkie Town retail chain of more than 300 very profitable stores. When Tekkie Town was sold to Steinhoff in 2016 it was valued at R3.2-bn … unfortunately mostly payable in shares, which Van Huyssteen now calls monopoly money. The contract stipulated that they were not allowed to sell the shares for three years, with the December 2017 implosion smack bang in the middle of the period.
Perhaps the culture clash was inevitable: on the one side is an entrepreneur who built an industry-leading footwear chain by negotiating good leases, good (for Tekkie Town) deals with brand suppliers and advertising that created the impression with consumers that they are getting good deals. Tekkie Town’s strength was that all profit was ploughed back into the company and they never incurred debt, Van Huyssteen told Sports Trader years ago.
Even though he owned a key account chain, Van Huyssteen was still an independent at heart, who was acutely aware of how and where money was spent, and income generated, because it came out of his own pocket, and who was involved in all aspects of running the business. He surrounded himself with a loyal management team that felt equally protective of the company. Tekkie Town has 1 100 employees, who, for example got their share of the Steinhoff sale, but everybody in the industry equates Tekkie Town with Braam van Huyssteen.
On the other side is a STAR management team who all joined established companies and retail groups and worked their way up the corporate ladder. The thread that binds most of them is Pepkor, where Lourens, for example, worked for nearly three decades. It is no surprise that chairman Jayendra Naidoo announced at the end of May results presentation that STAR are cutting all ties with Steinhoff by renaming the company Pepkor.
Playing the corporate game had not been a skill the blunt-speaking leading-from-the-front Van Huyssteen ever learnt. Independent thinking was one of his main strengths as an entrepreneur – 2012 South African Entrepreneur of the Year, no less – but, ironically, it signaled the beginning of the end of his relationship with Lourens and STAR/Pepkor.
To put this in perspective requires a backtrack of a few years: In November 2014 Steinhoff had purchased 92% of Pepkor for R62.5-bn from Christo Wiese, Brait private equity and members of the management team. Pieter Erasmus was CEO of the Group, which included Speciality Fashion and Footwear division Shoe City, Dunn, John Craig and Refinery. Erasmus was recently appointed as a STAR/ Pepkor director. According to Van Huyssteen this speciality division managed to accumulate a loss of R546-m over several years.
Less than two years later Tekkie Town joined Steinhoff after Markus Jooste had shown Van Huyssteen the possibilities of expanding into Europe, like Pep had done in Poland.
The period spent as part of Steinhoff was a happy one, Van Huyssteen says now, and Tekkie Town was trading well. So well that Wiese, who was company chairman, remarked that Pepkor should get the Tekkie Town people to run the loss-making speciality division.
When Tekkie Town was sold to STAR prior to its listing on the JSE as a separate entity to Steinhoff in September 2017 (even though it was basically owned by Steinhoff), that was indeed what occurred: Tekkie Town CEO Bernard Mostert was appointed CEO of the Speciality Footwear and Fashion division – with Tekkie Town added to the above mix – and Van Huyssteen as chairman and a director of the division.
In addition, Van Huyssteen was appointed chairman of the STAR Property Portfolio, which earned him a seat on the EXCO.
Then, the December 2017 implosion/fiasco/share disaster occurred and the Steinhoff name and every local business associated with it became toxic. Although, as Van Huyssteen pointed out numerous times, it is inconceivable that in a company of 135 000 people, one man could cause such a calamity without anybody else being aware of it.
At STAR, this resulted in the Steinhoff-related top management (e.g. CEO Ben la Grange) and board members being replaced over the December-January holiday period by Pepkor people, inter alia, by Leon Lourens as CEO and Riaan Hanekom as CFO.
It is fair to say that it is common knowledge in the sports, outdoor and lifestyle retail industry that Van Huyssteen knows how to negotiate and structure a lease that will ensure that his stores get the best possible deal. That was a major part of the Tekkie Town success recipe, and a role Van Huyssteen relished. He therefore considered himself ideally suited to give guidance in this portfolio. Which he duly did.
The former Pepkor members of the property portfolio didn’t like it, especially when he questioned why they had accepted certain leases. They complained to the new CEO.
On 31 January this year Lourens and the HR executive took Van Huyssteen to task. After praising him for the entrepreneurial role he had played and the success he (and the Tekkie Town team) had achieved in the speciality division, they suggested that maybe he wasn’t cut out for corporate life and should consider other options.
A somewhat miffed Van Huyssteen pointed out that the contract he signed at the time of the Tekkie Town acquisition by Steinhoff required him, and Tekkie Town management, to work for the company for 5 years.
From then on, relationships went downhill.
But, the Speciality Footwear and Fashion division run by the Tekkie Town team thrived. According to the interim results presented to investors on May 29th Speciality sales grew 17.3% – like for like store sales in the division grew 10.1%. One can but surmise that the strong growth reported by Tekkie Town was responsible for these results, although the former loss-making Pepkor brands were repositioned successfully (John Craig), remains a challenge (Dunns), were impacted by deflation (Shoe City) and showed brand traction (Refinery).
In comparison, Pep Africa like-for-like store growth was 16.2% down and the building materials division was 3.9% down on like-for-like store sales growth.
The corporate numbers were, however, stacked against them: the discount and value retailers (mainly Pep and Ackermans) contributed 81% of the first half of the 2018 financial year’s revenue. Former Pepkor people filled the STAR management and board ranks.
In the meantime, in March, Tekkie Town lawyers Webber Wentzel had written to Naidoo and Lourens (copied to Steinhoff chairperson, Heather Sonn and acting CEO Danie van der Merwe), reminding them that a bonus scheme based on Tekkie Town’s performance was agreed to by Jooste at the time of acquisition. This was amended by former STAR CEO Ben la Grange to include the performance of the whole STAR Speciality division. This was, however, not recorded in any of Star’s financial documents. When Steinhoff announced on April 11 that it was planning to place 200-m shares in STAR to off-set the liquidity scandal, they failed to inform investors of the potential earn out bonus of R455-m to R890-m (based on current performances) due to Tekkie Town executives in 2020.
Early in May Van Huyssteen upped the stakes by filing another suit to have the acquisition of Tekkie Town by Steinhoff cancelled on the basis of what Tekkie Town non-executive director Warren Erfmann termed as false representation by Steinhoff at the time of acquisition. “We believe we were misled by Steinhoff as the withdrawal of its financial statements indicated and we want the court to cancel the transaction and return the business to its original owners.”
STAR issued a SENS statement to the effect that it is not affected by agreements between Tekkie Town and Steinhoff – although Van Huyssteen maintains that Steinhoff is still the majority (70%) shareholder in STAR and that the agreement covered all future company ownerships.
As one can imagine this did not contribute to congenial conversations around the watercooler and on 21 May, it was announced that Van Huyssteen had resigned as chairman of the STAR Property Portfolio and member of the EXCO. Soon after, STAR announced that Van Huyssteen was relieved of his position as director and chairman of the Speciality Division, and that he would be replaced by Lourens.
“I didn’t resign, I was pushed off unilaterally and removed without due process,” Van Huyssteen told CNB Africa.
At the results presentation on May 29th Naidoo confirmed that STAR would honour loans and guarantees “provided to the special purpose vehicle, Business Venture Investments (BVI), whose shareholders are members of management of the old Pepkor”, which Lourens previously denied. Naidoo continued that although these agreements date from before the formation of STAR, “these liabilities were carried over into Steinhoff and thereafter into STAR,” which agreed to compensate the Pepkor executives approximately R500-m for the losses they suffered from buying Steinhoff shares.
“I have spent my life building this company and looking after my team. We have always said we work for the company, the company does not work for us,” Van Huyssteen said on Moneyweb. “I had committed to do the same for Steinhoff and STAR, but people who care more about their own financial position and who gladly accept mediocre outcomes have made it untenable for me to do what I have always done, day-in, and day-out.”
Asked about possibilities for the future, 53-year old Van Huyssteen told Moneyweb’s Warren Talbot that they do have money in the bank after private equity firm Actis paid R700-m for 42% of Tekkie Town in 2014. With the support of the Tekkie Town management and staff, support of their suppliers, and support of the landlords that he had built relationships with over the years, he believes there is a possibility of starting a Tekkie Town 2.
“We have done it before, we can obviously do it much faster this time because we have got enough money, we have got resources, we have got the relationships, nothing is going to stop us.”
Time will tell if this is feasible. And if Tekkie Town will survive if it remains part of Pepkor without the old management team and staff driving it.