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Was it a standard bearer for an emerging market ambitiously looking outward? Was it capital flight from South Africa where political troubles have undermined confidence in the country’s economy? Or was it just one of those roll-up companies that are too good to be true? 

Whatever the case, the collapse in the share price of home retailer Steinhoff International — which just over a year ago bought US retailer Mattress Firm — after therevelation of “accounting irregularities” sent shockwaves through the South African business world. That’s because the vehicle is backed by one of the country’s richest men, Christo Wiese (it’s worth reading this, shall we say, interesting tale from his past)andhas made a global splash by listing in Germany and doing deals in the US, UK, France and beyond in recent years. 

German prosecutors are investigating whether the company inflated its revenue and book value. The disclosure came one day after the South African-headquartered, Frankfurt-listed company said its chief executive Markus Jooste (below left, next to Wiese) would resign immediately from the group he built through a string of acquisitions into an international powerhouse with 40 brands in 30 countries. It also said that it had brought in PwC to carry out an independent investigation and was delaying the release of its financial statements until “it is in a position to do so”. Wiese has taken over as interim executive chairman.

Here’s the key line from our story

The investigators are probing whether Steinhoff flattered its numbers by selling intangible assets and partnership shares without disclosing that it had close connections to the buyers. The suspicious sales were in “three-digit million” euros territory each, according to the prosecutors.

Late on Wednesday, Steinhoff’s board added that it was giving “further consideration to the … validity and recoverability” of €6bn worth of the company’s non-South African assets, and expected to unlock about €3bn in liquidity through asset sales and a refinancing of a South African subsidiary.

Plenty of hedge fund managers, damp towel over head, have been trying to make sense of Steinhoff’s accounts for months: related parties and crossholdings are spread across continents.

The result can be seen in the large amounts of stock on loan ahead of Tuesday’s announcement, 40 per cent of the South African float, and a quarter of that in Frankfurt, according to Markit. 

Back in September 2016, a group of banks took €3.2bn of Steinhoff stock as collateral, against a loan to buy €1.6bn more. Wiese’s entire stake is now worth less than that debt, meaning attention has turned to his other liquid assets should he need to address margin calls. A €1.3bn stake in Shoprite, the South African retailer, for instance. 

Steinhoff had exercised an option to buy the shares this week, but not on a swift timetable. Completion is also in doubt, given gross debt of €9.2bn, €10bn of operating leases, and the unknown size of real profits.

The debate now is whether there is any value left in Steinhoff’s equity and, either way, what does it mean for the company’s bonds. Lex weighs this all up here, including what it means for the European Central Bank (here’s Alphaville on that subject), which snapped up some of the group’s European debt as part of quantitative easing. 

Intelligent curation and exclusive information: This is Due Diligence, the FT’s daily briefing on corporate finance, private equity and M&A. DD is delivered to your inbox Tuesday-Friday at 5am UK time. Meet the team, catch up on previous editions and sign up here. Get in touch with us: Due.Diligence@FT.com 

Peeling back the cover of the Hammerson/Intu deal

Is there a Northern billionaire pulling the strings on a £3.4bn all-stock property merger announced on Wednesday? A quick check of the facts suggests that John Whittaker, the developer behind a major shopping centre near Manchester, played a pivotal role in creating the opening for Hammerson to acquire a smaller rival called Intu, which fell out of the FTSE 100 in June and whose management team has been under pressure.

That’s because Whittaker holds around 27 per cent of Intu, through his company Peel Holdings. And in late June, he amassed a stake of close to 5 per cent in Hammerson. Now, just six months later, a deal that had been mooted for years has been reached. The deal will see Whittaker’s Peel emerge with 15 per cent of the combined company. 

To read more about Whittaker, an Isle of Man resident whose family’s quarrying company made a fortune when motorways such as the M62 from Liverpool to Leeds were built, check out this profile by the FT’s Andy Bounds. 

As the structure of the deal itself goes, Hammerson’s offer values Intu at more than a third off the value of its properties. Aime Williams reports that “analysts described the takeover bid as opportunistic given Intu’s share price was trading at half the net value of its assets, but warned that it also looked defensive with headwinds already evident in the British retail market”. 

In that regard, the deal fits the trend of intra-UK dealmaking as the prospects of Brexit pile extra pressure on to companies, which is having the effect of prompting defensive deals. 

But is this deal done and dusted? “We do not discount the possibility that today’s announcement could see other potential bidders throw their hats into the ring, eg WestfieldSimonUnibail and Klepierre,” according to analysts at Numis. 

Job moves

Houlihan Lokey’s John Song and Jean Stack are reportedly headed to competitor Robert W Baird. They are leaving Houlihan’s Washington-based government services, aerospace and defence practice. (Reuters)

Smart reads

China inbound How badly do US tech companies really want to invest in China? The answer could be less and less if new cyber security laws put their data at risk. (WSJ)

Is CEFC next? Is CEFC, the Chinese company that bought an $8bn chunk of Russia’s Rosneft this year, the next to be targeted by Chinese regulators? Following the US arrest of an associated businessman on corruption charges, the company’s business model is starting to look wobbly. (Bloomberg)

I made my shed the top-rated restaurant in London A Vice writer details how he gamed the TripAdvisor system by writing fake reviews for a non-existent restaurant in his backyard shed — and turned it into the top-rated restaurant in all of London. (Vice)

The future of Fox With the potential sale of huge chunks of 21st Century Fox, Rupert Murdoch looks set to transform his empire. (FTWSJ)

Apple’s $47bn windfall Apple will be the biggest beneficiary of the tax reform legislation now working its way through the US Congress. The tech company will see as much as $47bn slashed from its expected tax liability if Republicans push through the current plan. The potential windfall is based on calculations by tax experts and the FT. Here’s Lex’s take. Another big winner: the real estate industry, including Donald Trump. (FT, NYT)

David Rockefeller’s Rolodex Peer inside the legendary financier’s legendary contact book — filled with some 200,000 note cards — where the statesman recorded his meetings with over 100,000 people. (WSJ)

News round-up

UnitedHealth buys large doctors group from DaVita (NYT)

Walgreens to buy 40 per cent of Chinese pharmacy chain (Reuters)

Silicon Valley investor steps aside to fight ‘smear campaign’ (FT)

Gulf Energy points to Thai IPO resurgence after coup (FT)

US asset management giant Federated eyes bid for BT-owned Hermes (Sky News)

Ping An builds stake in HSBC to become second-biggest shareholder (FT)

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