Paid in Paper: What Tekkie Town's R3.2 Billion Exit Teaches Future Chartered Accountants
2 Min Read
In 1989 Braam van Huyssteen opened a shoe shop in George with R20,000. By 2016 Tekkie Town was running roughly 220 stores, had never borrowed externally, and had a buyer. Steinhoff paid R3.2 billion for a controlling stake, and van Huyssteen and his CEO Bernard Mostert became, on paper, very rich men.
The paper is the whole story because Steinhoff didn't hand over R3.2 billion, it handed over Steinhoff shares, delivered in January 2017. Fourteen months later (as we all know in hindsight) those shares were worth close to nothing, and the founders spent the next four years in court trying to get the shoe shop back instead of trying to get paid.
Most retellings file this under "trusted the wrong guy", which is true and also not very useful. The better question is when Tekkie Town stopped being a thing that could be handed back, because the founders' primary claim was never damages. They asked for the sale to be reversed and the business returned, and they lost that argument for reasons sitting squarely inside your accounting syllabus.
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🧠 Fun fact: Steinhoff began in 1964 as Bruno Steinhoff's furniture operation in Westerstede, Germany, and its original edge was buying cheaply behind the Iron Curtain and selling in the West. A business founded on the gap between what a thing is worth in one place and what it's worth in another. Make of that what you will.
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The Main Story
Consideration is a measurement question
When Steinhoff acquired Tekkie Town, IFRS 3 required it to measure the consideration transferred at the acquisition-date fair value of what it gave up. What it gave up was its own equity, so the number that landed in Steinhoff's accounts was a share count multiplied by Steinhoff's own share price on the day.
That's an entirely ordinary accounting outcome, and it's also exactly where the trouble lives. A share price is the market's read on a company's earnings, and PwC's forensic investigation later concluded that around R106 billion of profit had been manufactured between 2009 and 2016 through a web of intermediary entities, backdated documentation and inflated property and trademark valuations. The currency Steinhoff was paying with was itself an output of the fraud.
Worth being careful here. The founders' allegations against Markus Jooste were never tested to judgment: the civil matter settled, and Jooste died in March 2024 before the criminal case reached court. The mechanism here is the lesson, we’re not too worried about the verdict.
IFRS 3 anticipated this exact situation → Paragraph 33 says that where the acquirer and the acquiree exchange only equity interests, the acquisition-date fair value of the acquiree's equity may be more reliably measurable than the acquirer's, and where that's so, you use the acquiree's number instead. The standard already knows that a company paying in its own shares might not be a trustworthy source of what those shares are worth.
So R3.2 billion was never a valuation of Tekkie Town in a sense any CA would defend. It was a quantity of paper, priced by a market that had been fed bad information. If you're in articles and a share-for-share deal crosses your desk, that's the question to hold onto: what are the acquirer's shares actually a claim on, and would you take them if you had to hold them for five years?
A second wrinkle gets missed, structure a share-for-share deal for rollover relief under section 42 of the Income Tax Act and the seller's capital gain is deferred rather than removed, with the old base cost carried onto the new shares. Efficient, right until the new shares fall over. In this case no cash came in, so there was never any cash to diversify out with either.
Nobody can hand back a subsidiary
The founders' main claim was rescission and restitution. Which is to undo the contract, return the consideration shares, and get back Tekkie Town. Their alternative claim, R1.854 billion in damages, was the fallback.
Rescission is an unwinding, and unwinding requires both sides to still have what they got. Pepkor in this case did not. By the time the case was live, Tekkie Town had grown from roughly 230 stores to 398 and had been folded into Speciality's operations, with systems, buying, distribution and property leases all absorbed. There was no longer a discrete object called Tekkie Town.
This is the same problem IAS 36 solves in a different register. Once an acquired business is integrated, its cash flows stop being separately identifiable, which is why goodwill gets tested at cash-generating unit level rather than per deal.
IAS 36 even carries a worked example of the exact fact pattern. A cash-generating unit is broken up and absorbed into other units, and because the goodwill can no longer be tied to anything below the old unit except arbitrarily, the standard tells you to reallocate it across the new ones on relative values. The accounting has a tidy procedure for a business being dissolved into a group. What it doesn't have, and what the founders needed, is a way of running that procedure backwards.
When they sought an interdict to stop Steinhoff selling the Tekkie Town shares out from under the litigation, the Supreme Court of Appeal knocked it down in October 2020. Steinhoff NV held around 71% of Pepkor, and Pepkor held Tekkie Town. The court held that a controlling shareholding is not control of the subsidiary's decisions, and that Pepkor's board carried its own fiduciary duties.
Read that against IFRS 10 and the tension is obvious. Consolidation says the group is one economic entity, eliminates everything intragroup, and presents everything beneath Steinhoff to investors as a single reporting entity under one set of accounts. Company law says nothing of the sort. Each of those companies is a separate juristic person, each board owes its duties under section 76 of the Companies Act to its own company, and the consolidated balance sheet you've been reading is a presentation convention rather than a description of who owns what.
The other side of the entry
Worth flipping the transaction over to the sellers’ side, i.e. Tekkie Town’s founders.
From January 2017 the founders' vehicle held an equity investment in Steinhoff NV. Under IFRS 9 an equity instrument not held for trading defaults to fair value through profit or loss, with an irrevocable election available at initial recognition to present fair value movements in other comprehensive income instead.
Amounts presented in OCI under it never recycle to profit or loss, on impairment or on disposal. A seller who took the election in January 2017 to keep a lumpy share price out of earnings would have watched the entire destruction of their life's work accumulate in a reserve without it appearing in profit or loss once.
Insights From The Pocket CA
We've partnered with Pocket CA, an AI tool built for accountants, like your friend if they actually listened in lecture.
Here’s the technical detail in this scenario from the number-crunching machine:
IFRS 3 Business Combinations
Consideration transferred is measured at fair value, calculated as the sum of the acquisition-date fair values of assets transferred, liabilities incurred to former owners and equity interests issued by the acquirer (IFRS 3.37).
Where the acquirer and acquiree exchange only equity interests, the acquisition-date fair value of the acquiree's equity may be more reliably measurable than the acquirer's, and the acquirer then uses the acquiree's fair value to determine goodwill (IFRS 3.33).
Goodwill is the residual after deducting the identifiable net assets acquired from the consideration transferred (IFRS 3.32).
IFRS 9 Financial Instruments
At initial recognition an entity may make an irrevocable election to present subsequent fair value changes on an equity investment in OCI, provided the instrument is neither held for trading nor contingent consideration under IFRS 3 (IFRS 9.5.7.5).
The election is made instrument by instrument, meaning share by share (IFRS 9.B5.7.1).
Amounts presented in OCI under the election are never subsequently transferred to profit or loss, though the cumulative gain or loss may be moved within equity (IFRS 9.B5.7.1).
Dividends on such investments still go through profit or loss (IFRS 9.5.7.6).
IAS 36 Impairment of Assets
A cash-generating unit is the smallest identifiable group of assets generating cash inflows largely independent of the inflows from other assets (IAS 36.6).
Goodwill is allocated from acquisition date to each CGU expected to benefit from the synergies of the combination, at the lowest level monitored internally and no larger than an operating segment (IAS 36.80).
Where a reorganisation changes the composition of CGUs carrying goodwill, that goodwill is reallocated to the affected units on a relative value basis (IAS 36.87).
The standard's own example has a unit divided and integrated into three others, with the goodwill reallocated because it can no longer be identified below the old unit except arbitrarily.
Companies Act 71 of 2008
A company is a subsidiary where another juristic person controls a majority of the general voting rights, or has the right to appoint directors controlling a majority of board votes (s3(1)(a)).
Directors may be held liable under the common law of fiduciary duty for loss sustained by the company from a breach of the duties in s75 or s76 (s77(2)(a)).
Those duties are owed to the company itself, which in a group means each subsidiary board answers to its own company rather than to the shareholder above it.
Check out the → 🔗Pocket CA
The Bottom Line
Two men built a retailer from R20,000 and sold it for a number that turned out to be a share count rather than a value. When the buyer's accounts came apart, they discovered that the business they'd sold had been dissolved into a group structure that neither the buyer nor the courts could reverse, and that the consolidated statements which showed the group as one entity offered them no help at all in getting one part of it back.
They settled in December 2021 for R500 million in cash and 29.5 million Pepkor shares, dropped every claim, and went and opened Mr Tekkie. In July 2025 Ibex, the entity Steinhoff became, sold its last Pepkor stake for about R28 billion and the saga closed without a courtroom ever ruling on the merits.
If you're in articles on any group with an acquisitive history, go and pull the acquisition note in the last three annual reports and check what the consideration was made of. Cash, shares, deferred payments, earn-outs. Then look at how quickly the acquired business disappeared into a larger CGU for impairment testing. The gap between those two facts is where a seller's optionality goes to die, and it's usually disclosed in about four lines that nobody reads.
Until next week,
The Journal Entry Team
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