I had never heard of Steinhoff until, in the summer of 2016, they threw down in the U.S. mattress scene with a $3.8 billion acquisition of Mattress Firm. The mattress industry was awestruck by this $22 billion South African furniture conglomerate's vision to further invest hundreds of millions of dollars into Mattress Firm's sprawling retail network, and to vertically integrate mattress manufacturing through the ensuing Sherwood Bedding acquisition. Steinhoff CEO Markus Jooste was revered as a kind of peer to Warren Buffet, and Mattress Firm Chairman Steve Stagner achieved legendary status riding off into the sunset. It made for a beautiful next chapter to the story of a hyper-aggressive M&A roll-up of over 3,500 antiquated mattress chains around the US.

On December 6th 2017, Steinhoff sparked a wildfire of global headlines upon admitting "accounting irregularities," and Mattress Firm leaped down into a death spiral hooked to the hip of its parent company's multi-billion dollar fraud.

Here are my notes below on the series of events that follow surrounding the Steinhoff scandal, out of pure interest as a student of business and the mattress industry. There are too many disparate pieces of news coming out on a daily basis, without a centralized repository organizing them, so I'm sort of putting one together here. I started by updating this log on a daily basis to piece together the fast-paced narrative, and later will only make updates for substantial happenings.

Global map of Steinhoff acquisitions

The global markets have been rocked as Steinhoff International Holdings NV sees shares plunge on official investigations into "accounting irregularities" and the sudden resignation of its legendary CEO Markus Jooste—once praised as South Africa's equivalent of Warren Buffet—after nearly two decades leading an M&A spree in the home & furnishings industry.

Since then, in a series of twists and turns reminiscent of Enron's mega accounting disaster, the unwinding story of Steinhoff has developed continuously.

Here is a summary of the events so far:

Wednesday 6 December

Disclosure of possible "accounting irregularities"

  • Possible prior year reinstatement.
  • UNAUDITED financial results to be released.
  • The accounting irregularities relates to the "off balance sheet accounting" which took place for the group of entities owned wholly or partially by Steinhoff, as a financial holding company.

CEO resigns

  • Markus Jooste resigns as Steinhoff CEO overnight.
  • Steinhoff CFO Ben La Grange resigns as Steinhoff Africa Retail CEO.
  • Markus Jooste steps off PSG Group board, with immediate effect.
  • Jooste's resignation email to employees:
Markus Jooste resigns

Steinhoff stock price jumps off the cliff

  • Share price falls by 62%.
JSE SNH stock price drop

Skeletons in the closet

  • Viceroy Research publishes detailed 37-page report about "Steinhoff's Skeletons"... If this is true, off balance-sheet entities were allegedly used to inflate earnings and obscure losses:
“We found their acquired businesses are struggling but net income has been artificially propped up by a massive web of undisclosed related party transactions.”
“Steinhoff’s confusing roll-up structure likely holds numerous other secrets which are yet to uncover. Viceroy believes incestuous managerial transactions; lack of transparency and entirely non-independent governance make Steinhoff borderline uninvestable.”
“Off balance-sheet entities were allegedly used to inflate earnings, obscure losses”
Viceroy Research
Viceroy Research

Thursday 7 December

From investment-grade blue chip to penny stock overnight

  • On Thursday night‚ Moody's cuts Steinhoff's credit rating from "lowest investment grade" Baa3 to "highly speculative" B1 as a junk bond.
  • As recently as earlier in the week, Steinhoff was an investment-grade, blue chip heralded as a proud African success story on the global stage.

Key characters of the Steinhoff scandal
Some of the key people involved in the scandal:

  • Christo Wiese (Chairman)
  • Markus Jooste (Former CEO)
  • Theodor Schmidt (Former CEO and CFO)
  • Bruno Steinhoff (Founder)
  • Cedric Schem  (Former Emyee)
  • Gunnar George (CEO of Steinhoff subsidiary)
  • Jean-Noel Pasquier (Director of Campion Capital)
  • George Evans (Director of Campion Capital)
  • Johanes Van der Werde (Former CEO and CFO)

Byzantine transactions between related entities
The malpractice referred to above was achieved by Steinhoff using the following entities in a hidden and non-compliant way:

  • GT Global Trademarks
  • JD Finance
  • Campion Capital
  • Capfin
  • Pepkor
Steinhoff directors interlock
Steinhoff directors interlock

How this works:

You have a group of entities all ultimately owned by a holding company. These companies can be owned wholly or partially. IFRS (International Financial Reporting Standards) require that these companies publish consolidated financial statements so that role players like lenders and investors are able to see the bigger picture.

Liabilities such as finance agreements are structured in one company, say Company A. Company A then leases the assets to Company B on more favorable terms than would be found on the open market place. To confuse matters a bit more and to justify Companies A and B not being consolidated for financial statement reporting purposes complex shareholding structures via trusts and different classes of shares with different voting rights are developed.
But someone has to still pay the liabilities of Company A. This is easy when the directors who are also major shareholders in Company B can sell some shares at high prices and then invest the money as loans to Company A in order for Company A to meet its obligations. With the current low share prices this is going to be very difficult to achieve and one will find the cash flow of companies in the group under severe pressure.
The difference between an accounting irregularity and fraud is the scale on which selective interpretation of IFRS took place. Questions that will be answered in coming months include for how long has this been taking place and why did the auditors only now refused to sign off on the interim results.

Shock waves ripple through the market
Steinhoff-related market valuation carnage since Jooste resigned (not far off a quarter of a trillion Rand):

SNH  -R170.9 bn
Star   -R24.5 bn
Brait  -R 2.9 bn
PSG   -R11.1 bn
KAP   -R 1.8 bn
SHP  -R12.2 bn
IVT    -R 0.5 bn
Total -R223.8 bn

Friday 8 December

"No way back" as Steinhoff share price plunge nears 90%

  • The stock slumped a further 41% on the Frankfurt Stock Exchange after Moody’s Investors Service slashed the credit rating late Thursday.
  • David Shapiro, deputy chairman of Sasfin Wealth in Johannesburg:
"There’s no way back. The worry is that there are a huge number of operating companies within the stable – if you were a supplier to these businesses would you sell goods on credit? I reckon they should file for Chapter 11 or business rescue and try and salvage what they can."

Christo Wiese loses "Billionaire" status

  • Within 48 hours, Wiese, who is Steinhoff's main shareholder, spirals down from being one of the richest South Africans with a fortune of $5.8 billion down to $728 million.
  • Christo returns to day-to-day operations, stepping in as interim CEO.
  • Wiese seems a colorful character, who a few years ago was caught in London Airport with £674,920 in hard cash in his luggage:
Christo Wiese cash luggage

Public pension funds at risk

  • Steinhoff's 2nd largest shareholder is the Public Investment Corporation, the state-owned investment firm that administers the pension funds of public servants.
  • The PIC's 8.56% stake is worth just R3.6-billion today. Two weeks ago it was worth R20-billion.

Steinhoff improves governance

  • Steinhoff announces after the market closes that it's appointed a new sub-committee to improve governance. The three-strong group are all existing board members.
"A board subcommittee, composed solely of independent non-executive directors and headed by Johan van Zyl has been constituted to bolster the independent governance of the group. The other members are Dr Steve Booysen and Ms Heather Sonn."

London bank meeting delayed

  • Steinhoff announces it is pushing back a meeting in London with its banks from Monday to Dec. 19. That meeting is to discuss financial results.
  • The banks include Standard Bank, Commerzbank, Citigroup, Goldman Sachs, HSBC and FirstRand. They lent 1.6 billion euros to Wiese last year to buy additional stock in Steinhoff through a family trust. They hold part of his stake in Steinhoff as collateral.

European Central Bank left on the hook

  • Steinhoff Europe AG issued €800 million of bonds in July 2017. The bonds, with a 1.875% coupon, mature in January 2025. Moody’s rates them Baa3, so one notch above junk. Hence they were eligible for ECB purchases.
  • The ECB acquired the Steinhoff bonds under its corporate bond purchase program that is part of its Quantitative Easing (QE) program.
  • To keep its bond operations opaque for the public, the ECB doesn’t disclose by name what it buys, how how much it buys, or when it buys those bonds. But it discloses a list of its current bond holdings.
  • Those bonds were trading at over 100 cents on the euro shortly after they were issued in July, probably under the pressure from the ECB’s purchases. Today, they plunged 33% to 56.18 cents on the euro and are down 45% from mid-September.
ECB Steinhoff holdings
Steinhoff bonds crash

Mattress Firm in the eye of the storm

  • In 2016, Steinhoff paid $2.4 billion to acquire Mattress Firm, the United States’ biggest mattress chain, which now operates over 3,500 stores in 49 states including the recent acquisitions of Sleepy’s and Sleep Train.
  • Recently, Steinhoff invested an additional $140 million, on top of its original $2.4 billion investment, in an attempt to revive Mattress Firm by rebranding 1,600 stores and shedding its key supplier Tempur-Sealy.
  • Mattress Firm president and CEO Ken Murphy releases PR statement that the company has faith in Steinhoff's board and the interim executive chairman, Christo Wiese, during the investigation.
"We have the full support of Steinhoff and our vendor partners, and our focus remains on continuing to do what we do best - help our customers get a better night's sleep"
  • Steve Stagner, Mattress Firm's executive chairman, also serves on Steinhoff's executive committee.
  • Steinhoff had borrowed heavily to acquire a number of South African and European retailers, and its debt topped $6 billion when it finalized its acquisition of Mattress Firm, its first U.S. company.

Sunday 10 December

Outside advising on lenders' meeting

  • Steinhoff appoints two advisory firms ahead of bank meeting, which has now been pushed to Dec. 19.
  • U.S. investment bank Moelis & Co (MC.N) will advise Steinhoff on talks with its lenders.
  • Management consultancy AlixPartners will “assist on liquidity management and operational measures”.
“The group is currently fully focused on safeguarding operational liquidity to continue funding existing operations throughout its various subsidiaries"

Monday 11 December

Market value teetering at $2.7B

  • The stock market evidently sees value in the equity—about $2.7 billion worth.
  • However, if bondholders aren't getting repaid at par, then the stockholders would be getting nothing.
  • Experts point out that the questions over potential accounting fraud make it almost impossible to value Steinhoff.
  • Then there is the potential for writedowns on Steinhoff's vast acquisition spree, and previously undisclosed liabilities:
The lack of transparency about what went wrong could spook potential buyers of Steinhoff units concerned about what lies behind the facade of a company that’s run from South Africa but has its main stock listing in Germany, with an official corporate registration in the Netherlands.
  • Bloomberg reports, "But until the numbers are clarified, it's brave to say either the equity or the bonds are cheap."

Preparing to shop around retail assets

  • Steinhoff faces a potential fire sale of its global retail holdings as it battles for survival. As of the end of March, it  owes creditors more than $21 billion.
  • Steinhoff puts out statement that it may sell assets worth at least 1 billion euros ($1.2 billion) and is reviewing the recoverability of non-South African assets worth a further 6 billion euros.
  • Analyst at TCC Global identifies Steinhoff's "crown jewels" that must be kept alive due to their high cash generation and profit margin, unlike the recent acquisitions such as Mattress Firm and Poundland: "Primary concern will be keeping the South African business alive, along with their Pepkor business in eastern Europe."
  • Houston-based Transwestern Director of Research on the business fundamentals of Mattress Firm: "It's quite obvious [Mattress Firm] expanded too quickly. They pushed very hard for growth, so it made it easy to cover [the alleged fraud] up. A lot of these locations don't make much sense. They're deals just to get a deal done."
  • Steinhoff may sell its stakes in PSG Group and KAP Industrial:
Steinhoff sale of PSG KAP

Details of Steinhoff's loans
The following are details of Steinhoff’s loans, the dates they are due to be repaid and some of the terms involved. All data is from IFR, which is part of Thomson Reuters:

  • Steinhoff has $2 billion of term loans maturing between 2018 and 2020. This is the remainder of the loans used to purchase Mattress Firm. The interest rate paid on the loans was an initial 120-145 basis points (bp) over Libor. However, this will rise to 250-280 bp following the downgrading by Moody’s of Steinhoff’s credit rating from investment grade to “junk” status last week.
  • The company agreed a 2.9 billion euro ($3.4 billion) revolving credit facility in July 2016. This matures in June 2021 and the interest paid is 90 bp over Euribor. This was in part used to replace the bridge loan Steinhoff took to fund its Poundland acquisition. 539 million euros of the facility had been drawn at the end of 2016.
  • Steinhoff has a 650 million euro “Schuldschein” (a type of private placement widely used in Germany) which was placed in June 2015 with maturities of 2020, 2022 and 2025. It also has other smaller “Schuldscheindarlehen” (SSD) borrowings.
  • Steinhoff has two 250 million euro bilateral revolving facilities with an international lender and a German bank, both maturing in 2018. ($1 = 0.8480 euros)

Tuesday 12 December

Markus Jooste: "The Seagull" and his "Stellenbosch Mafia"

Markus Jooste also known as The Seagull
  • A Steinhoff subsidiary employee breaks the silence on the toxic culture surrounding CEO Markus Jooste: "The Steinhoff dream was unmistakably the maintenance of an anachronistic 'old boys' club' where misogyny and racism were celebrated."
  • Behind closed doors, Markus Jooste had earned the badge of honor as "The Seagull": "Markus was the seagull because he would fly in, shit all over his executives and then fly out."
  • Notoriously revered as the "Stellenbosch Afrikaner Mafia," Markus Jooste's closest group of trusted lieutenants were built around sophisticated accountants who had all studied at Stellenbosch University.
  • It became common Steinhoff practice to deploy Stellenbosch-educated Afrikaner accountants to a newly acquired manufacturing business as the new defacto leader of the management team.
  • After acquiring Mattress Firm in 2016, Steinhoff installed as CFO Hendre Ackermann, who had studied accounting and finance at Stellenbosch University from 1999 to 2003.
  • The Steinhoff employee recounts how Jooste was able to acquire loss-making businesses and continually conglomerate them in order to obscure losses and inflate earnings:
The promised economies of scale were notoriously difficult to achieve and soon the logic changed from building economies of scale to vertical and horizontal integration. Starting with the Gomma-Gomma group of furniture manufacturers, acquiring other furniture manufactures along the way,
Markus started to buy shares in transport companies and forestry companies promising to integrate the entire value chain, thus delivering super profits... When the promised returns failed to materialise, the quick fix was to acquire an even bigger company within which the losses could be absorbed or magically made to disappear.
Markus Jooste on competition

Quote from Markus Jooste' FinancialMail interview in October 2017 edition

Entire Steinhoff board on the hook

  • Benguela Global Fund Managers sends note to clients that Steinhoff stock is "no longer investable," and it does not believe Jooste could have acted alone in a vacuum.
"While Markus Jooste has resigned and made to look like the only person involved in the so called ‘mistakes’, we find it to be unbelievable that the board and particularly the chairman didn’t know a thing about them either. Our position is that the whole board is tainted either for complicity or incompetence and should accordingly be forced to resign. We thus currently no longer view the stock as ‘investable’, even if the potential for upside could be significant, it is the potential downside to zero that is becoming more real."
  • WSJ publishes "Steinhoff’s Sleepy Board Needs Clearing Out" related to the role of Christo Wiese:
Steinhoff’s case is complicated by the presence of an anchor shareholder on the board. Chairman Christo Wiese owns 23% of Steinhoff’s stock, having sold his Pepkor clothing chain to the company for $5.7 billion in 2015 and having bought another big chunk of stock last year. He has stepped in as executive chairman.
But Mr. Wiese is no fresh set of eyes. He has known Mr. Jooste for decades and been on the Steinhoff board since 2013, shortly before the company paid a rich price for Pepkor, more than 30 times trailing earnings, according to S&P Global Intelligence.
Steinhoff shares and bonds have gyrated wildly over the past week as investors try to ascertain what value might be left. This is a fool’s errand until an outside pair of hands directs the clean up. Independent shareholders and creditors need a genuinely independent investigation. A major accounting scandal cannot be resolved by the regime that failed to spot it.

Those buying the dip

  • Owen Nkomo, CEO of Johannesburg-based money manager Inkunzi Wealth Group:
"I doubt Steinhoff will collapse. I would much rather take a chance and buy Steinhoff than Bitcoin."

Speculation continues on Mattress Firm's fate

  • Wedbush analyst writes to investors that Mattress Firm, which has for months seen same-store sales decline, will likely continue to struggle as Steinhoff conducts its investigation and looks to sell its assets.
"A 'fire sale' of Mattress Firm itself is not out of the question, but unlikely at this time."
  • Mattress Firm CEO Ken Murphy declines to comment on the speculation: "We remain steadfast and committed to what we do best."

Wednesday 13 December

2016 consolidated financial statements "can no longer be relied upon"

  • Steinhoff announces that "issues concerning the validity & recoverability of certain Steinhoff Europe assets in the 2017 audit work, are also relevant to the 2016 year," meaning the 2016 AFS will also need to be restated and can no longer be relied upon.
"The 2016 consolidated financial statements will need to be restated and can no longer be relied upon. Shareholders and other investors in Steinhoff are advised to exercise caution when dealing in the securities of the group."

Government Employees' Pension Fund demands seat on Steinhoff's board

  • The Government Employees' Pension Fund (GEPF) and its asset manager, the Public Investment Corporation (PIC), insists on having 2 representatives on Steinhoff's board committee investigating the company, "to ensure that the process is transparent."
  • The GEPF and the PIC also plan to appoint two directors to the boards of both Steinhoff International Holdings and Steinhoff Africa Retail.

Friday 22 Dec

Mattress Firm announces availability of credit up to $225 million

  • As Steinhoff faces potential insolvency, its U.S. subsidiary Mattress Firm secures a credit line that can be drawn up to $75 initially. Mattress Firm says the credit agreement is up to $225 million dependent on certain undisclosed future hurdles.
  • The credit line is backed by Mattress Firm's own assets, and will be used for working capital, vendor payments, and other corporate purposes.

Tuesday 26 Dec

Mattress Firm discloses plans to close over 200 stores

  • In an effort to "accelerate Mattress Firm's store rationalization program following its 'land grab' period last year," Mattress Firm chairman Steve Stagner plans to immediately cut approximately 200 under-performing stores. Here is the list of Mattress Firm store closures.
  • Beyond these immediate closures, Mattress Firm plans to close further yet undetermined count of surplus stores over the next 18 months.

4 Jan 2018

Steinhoff CFO Ben La Grange Resigns

Steinhoff CFO Ben La Grange
  • As Steinhoff announces that some of its business units require "significant near-term liquidity," Ben La Grange resigns from his CFO position to "focus on accounts and liquidity efforts."
  • La Grange has been with Steinhoff since 2003, when he joined as manager of its corporate tax division. He was appointed as CFO on March 5 2013.
  • Since Markus Jooste's resignation, many in the financial community have wondered why La Grange wasn’t forced to step down together, considering he (along with Jooste and COO Danie van der Merwe) had signed off on the most recent interim financial results.
  • Ben La Grange has also served on Mattress Firm's board of directors since its acquisition, as the other Steinhoff-appointed member serving along side Jooste. Mattress Firm has not yet commented on board changes.
  • La Grange also held active directorships at a dozen other group companies, and was alternate director at PSG Group, PSG Financial Services and IEP Group (Pty) Ltd.
Steinhoff debt structure

8 Jan 2018

European Central Bank sells its entire holding of Steinhoff bonds

  • The ECB bought into Steinhoff Europe AG’s €800m bond issue in July last year, when the bonds carried an investment grade rating.

12 Jan 2018

JP Morgan reveals paper Steinhoff loss of $143 million

  • Sending another shock wave into the global financial markets, JP Morgan reports a $273 million hit to its fourth-quarter earnings from "a single client."
  • "It is by far and away the largest loss in [the equity] business we've seen since the crisis," says JPMorgan CFO Marianne Lake.

Citigroup also reveals $130 million derivatives loss triggered by Steinhoff

  • Citigroup shortly follows JP Morgan announcing that Steinhoff, as a "single client," was responsible for a $130 million wipeout in in its equities-trading revenue and most of $267 million in credit losses in its Institutional Clients Group.

17 Jan 2018

Bank of America reveals $292 million Steinhoff loss

  • Bank of America announces a $292 million charge-off.

Goldman Sachs also reveals $130 million Steinhoff loss

  • In an earnings call, Goldman Sachs announces a $130 million loss on its Steinhoff loan.
  • "I wanted to come right out and mention that we took a $130 million loss on a single structured loan, and that was Steinhoff," says Goldman Sachs' CFO Marty Chavez.
  • Citi, HSBC, Goldman Sachs, and Nomura initially arranged the $1.8 billion margin loan, backed by some 628 million shares of Steinhoff's now-crippled stock, and subsequently sold off parts of the loan to other banks.

20 Jan 2018

Steinhoff sells $25 million private jet

  • Steinhoff discloses sale of its corporate Gulfstream private jet to US broker as cash runs low.
  • The luxuriously 2006 Gulfstream has been valued at almost $25 million and was bought by Steinhoff in April 2017. It’s capable of 12-hour non-stop flights and is certified for 16 passengers.

23 Jan 2018

UK Poundland seeks independence from parent Steinhoff

  • Steinhoff's UK subsidiary Poundland seeks management buyout following Steinhoff scandal.
  • Poundland has approached various private equity firms, including turnaround firm Alteri, Advent, Apax, Bain, Clayton Dubilier & Rice, CVC and KKR.

Mattress Firm conspiracy theory goes viral

Reddit comment speculates Mattress Firm money laundering
  • A comment on Reddit speculating that Mattress Firm is a money-laundering operation goes viral, with over 15,000 upvotes from other users.
Mattress Firm money laundering conspiracy map

26 Jan 2018

Mattress Firm CEO Ken Murphy resigns

  • In what appears to be a public response to the money laundering allegations, Mattress Firm announces that president and CEO Ken Murphy has resigned from the company. He will leave Mattress Firm in March.
  • Mattress Firm's executive chairman Steve Stagner will return as CEO, after having served the company in that capacity from 2010 to 2016.
  • Ken Murphy has also served on Mattress Firm's board of directors, as the other insider board member alongside chairman Steve Stagner. Mattress Firm has not yet commented on who will replace Murphy on the board.
  • Also resigned/terminated along with Ken Murphy are CMO Sicily Dickenson, who joined 1 year ago, and COO Karrie Forbes, who has been with the firm since 2005.

31 Jan 2018

Ex-CEO Markus Jooste missing and reported to police

  • Steinhoff has reported Markus Jooste to the Hawks, an elite anti-corruption police unit in South Africa.

2 Feb 2018

Nomura reveals $128 million Steinhoff loss

  • Joining the growing list of banks burnt by Steinhoff meltdown, Japan’s biggest brokerage Nomura says it booked an unrealised loss of about ¥14bn ($128 million) relating to Steinhoff margin loan.
  • In 2016, Nomura was among international banks that provided a $1.9bn margin loan backed by 628 million Steinhoff shares that were pledged by Steinhoff chairman Christo Wiese.

Mattress Firm CEO, ex-CEO and executive team deposed over real estate kickback scheme

  • Lawsuit filed by former Mattress Firm employees claims that current CEO Steve Stagner and former CEO Ken Murphy participated with "unclean hands" in kickback schemes with developers working on Mattress Firm stores between 2010 and 2016.
  • The deposition compels Mattress Firm to reveal documents showing any real estate investments related to the alleged scheme.

7 Feb 2018

Mattress Firm to potentially close 1,000 stores and file for bankruptcy

  • Wedbush analysts report that base case for closures is now 600 stores for 2018, with potential for as many as 1,000 stores out of Mattress Firm's 3,400 store base.
  • Mattress Firm may do a pre-packaged "fire sale" bankruptcy to private equity buyer.
  • Mattress Firm's "dark rent" occupancy burden is $160,000 per store.
  • Steinhoff originally bought Mattress Firm for $3.8 billion in 2016 when the company was projecting $340 million in EBITDA.

12 Feb 2018

Christo Wiese cuts personal stake in Steinhoff to 6%

  • Steinoff's ex-chairman involuntarily sells shares related to his margin loans.
  • This reduces Wiese's shareholding and exposure from 20.52 percent to 6 percent.
  • Due to recent events surrounding the Steinhoff scandal, Wiese’s net worth has plunged to $2.1 billion from about $5 billion.

13 Feb 2018

Hedge Fund shares insight into how they saw it coming

  • JHL Capital's fourth quarter and full year 2017 letter to investors shares its own direct experience (and fortunate bullet dodged) with the Steinhoff / Mattress Firm scandal.
  • JHL spent the past decade studying Mattress Firm and took an active short position in $MFRM stock.
  • The fund was initially attracted to Mattress Firm, as it believed the group was "effectively destroying capital" and it was only a matter of time before the mattress business breached its debt covenants.
  • JHL's own analysis suggested that the $MFRM stock was worth zero.
  • JHL speculates on Steinhoff's acquisition of Mattress Firm, that the transaction must have been "driven by something non-economic, like a desire to temporarily distract investors from other aspects of their business operations."
  • The fund covered its short position after seeing the European Central Bank buying up millions of dollars of Steinhoff debt: "How does one assess an apparent financial fraud against the ongoing free money hand out from the ECB?"
The SNH example is a powerful lens through which to view the current market regime. Free or virtually free money is available to private market participants so long as they undertake any risk seeking activity, i.e., doing what the central banks want them to do. In a world where the cost of capital is negative, cash-burning companies may not only survive but thrive.

14 Feb 2018

Famous Youtube personality's Mattress Firm conspiracy video goes viral

  • Shane Dawson highlights the Mattress Firm money laundering conspiracy on his YouTube video below and clocks over 7 million views.
  • Related videos showing the curiously unsustainable number of Mattress Firms:

19 Feb 2018

HSBC reveals $188 million Steinhoff loss

  • HSBC joins the list of banks holding the short end of the stick with $188 million bad loan.

1 March 2018

Steinhoff announces cash is missing

  • Steinhoff states that its essential working capital has "largely dried up as the access of our operating businesses to their banking facilities and other credit lines was severely constrained."
  • Steinhoff also announces the potential for "additional material impairments" beyond the €6bn in assets it has already flagged as suspect.
  • The situation raises suspicion that some or all of the cash originally stated on Steinhoff's books was not actually there, since it would be strange for an acquisitive company to have sat on a €3bn cash pile for years.

2 March 2018

Steinhoff leaks show how Markus Jooste conspired with other executives

  • Markus Jooste conspired with fellow executives at Steinhoff to move revenue figures around subsidiaries to boost their balance sheets.
  • The ex-CEO told one of his managers to add an additional 100 million euros ($122 million) of revenue from a subsidiary to help inflate the company’s reported profit.
  • In a separate email, the ex-CEO referred to a need to "clean up the past."
  • Steinhoff has said it’s looking to restate accounts dating back to at least 2015, and hasn’t reported financials for the last fiscal year.

6 March 2018

Financial analyst outlines key reasons for Steinhoff's failures

  • Ted Black attributes current situation to a "confused board and a typical, regal, overpaid CEO"
  • Steinhoff’s asset base has grown at an average compound rate of more than 30% each year since 2000.
  • Today, more than 50% of its assets are intangible.
  • This is Steinhoff’s ROAM linked to intangible assets as a percent of the total asset base:
Steinhoff's intangible assets
  • This is Steinhoff’s trended Free Cash Flow by period and cumulative.
Steinhoff's free cash flow

7 March 2018

Steinhoff reports Mattress Firm needs cash

  • Mattress Firm still seeking solution to working capital, in Steinhoff's latest quarterly update (Q1FY18): "Work remains to be done to ensure that the group and its operating businesses have the required working capital... in particular Mattress Firm."
  • Mattress Firm's revenues are down 16%.