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Local Retail Group Battles To Survive After Missing Out On The Good Guys

When The Good Guys was up for sale the then Chief Executive Michael Ford was a big supporter of an offer from Steinhoff the South African Company who is now facing a major corruption investigation, this bid failed with the Company now owned by JB Hi Fi.

Within weeks of Ford leaving The Good Guys to be replaced by former JB Hi Fi CEO Terry Smart, Ford turned up as the new CEO of the local Steinhoff.

Steinhoff Asia Pacific are now weighing a management buyout of the local operation that controls Freedom Furniture, Harris Scarfe and Fantastic Furniture after it was revealed late last year that the global retail conglomerate is engulfed in one of South Africa’s biggest ever accounting scandals.

Late last week the Company reported its former chief executive to police.

Heather Sonn, Steinhoff’s acting chairperson, told South African MPs that Markus Jooste — who resigned after the discovery of accounting irregularities last year — had been referred to the Hawks, an elite South African, anti-corruption unit.

Sources claim a local deal could see the management and its backers write a cheque for somewhere between $500 million and $1 billion.

The Australian newspaper claims that Investment bank Deutsche is believed to have been drafted in to work with Steinhoff to shore up funding, as it remains in search of additional trade financing.

Now run by Ford, the Steinhoff Asia Pacific stable also includes Best & Less, Postie, Snooze, Plush sofas, Bay Leather Republic, Unitrans, Big Brand Outlet, the Original Mattress Factory and Fantastic Holdings.

Ferrier Hodgson and Minter Ellison are working with the company while McGrath Nicol has been appointed by the local lenders.

Moelis is working for Steinhoff at a parent company level.

Freedom sources most of its products from factories owned by its parent company, which has its roots in manufacturing, so determining its profitability will be difficult for a buyer.

Market insiders say that the Asia-Pacific portfolio also includes a ragbag of retailers and question whether they would be offloaded to one buyer.

ChannelNews understands that at one stage Steinhoff was keen to enter the appliance market as they saw the category as being compatible with their furniture operation.

Right now, several Companies are looking at the local Steinhoff operation which benefitted from cheap South African manufacturing of furniture.

Monash Private Capital — the firm founded by the former Specialty Fashion Group chairman Geoff Levy — has also been brought in as an adviser.

Steinhoff’s lenders to the local subsidiary, which have included National Australia Bank and ANZ, have been nervous about its prospects due to the troubles being faced by the parent company offshore.

Steinhoff International is facing a probe by German regulators into allegations that the company’s management used off-balance-sheet entities to hide losses and artificially pump up its valuation.

The Australian newspaper said that the situation has caused the company’s market value to crash on the Frankfurt and Johannesburg stock exchanges, with bondholder and margin loan losses.

Local management fear the situation could force a sale of the profitable Australasian assets to pay down the debts of the stricken parent.

Management may have also been caught up in the fallout with stock held in the parent, and while executives remain focused on stabilising the business, a buyout remains on the agenda, sources say.

It is believed that the plan for the company now is to launch a sales process, with some betting that an investment bank has already been appointed.

The big problem for Steinhoff, is that many buyout funds are retreating from the retail space, which is facing tough conditions, as evidenced last week when vacuum cleaner retailer Godfreys forewarned the market that it expects to report a loss after a weaker-than-expected Christmas trading period.

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