The consortium’s bid for Barloworld has quickly become like those TV series that start off with such promise when you think they’ve got a limited lifespan, but become increasingly tedious as they drag on for an interminable number of seasons.
The final date – perhaps – now looks to be September 30, which is when the results of the standby offer will be announced. Could it be that Newco – the buying consortium led by the Saudi Arabia-based Zahid group and Barloworld CEO Dominic Sewela – is attempting to bore shareholders into submission?
But here’s the rub: in all that time, while shareholders will be trying to decide whether or not to accept the offer, Newco’s point man, Sewela, will still be leading the company. So, for another seven months shareholders will be expected to believe that a plethora of governance protocols will ensure the company is managed efficiently without conflicts of interest.
This will surely not go down well with the 43% of shareholders who voted against the directors at the recent AGM. Or the 60%-plus of shareholders who voted against paying the five directors on the independent board tasked with overseeing the transaction process.
Could it be the Zahid group is having second thoughts? Certainly, the details of the standby offer, which were released last Friday, don’t give the impression of a buyer who is desperate to get 100% of the company, or desperate to do so promptly.
It appears to have given shareholders up to mid-April to decide whether or not to take the standby offer – though it seems that date might be changed – and only intends paying them in September. So shareholders who accept are giving Newco a free six-month option and presumably losing out on the interim dividend.
Of course, approval from various regulators, particularly the competition authorities, ensures few deals are done promptly these days, but the details of the standby offer tag a response deadline of late September. That’s probably more than two years after the Zahid group first approached Sewela about a deal.
And even that date is a “maybe” – because it’s subject to both regulatory approval and Newco waiving the 90% acceptance condition it has imposed.
We’ll know by May 9 whether Newco has decided to waive that condition. But shareholders still have to wait until September 12 to find out whether or not the standby offer is unconditional in all respects.
One small shareholder, who says he is totally confused about the timeline of the transaction, tells Currency he remains undecided, but has been advised to hold onto his shares until September 25, which is the day before the closing date of the offer.
Resounding unhappiness
Newco’s “take it or leave it” approach to the transaction, evident in the updated standby offer details, smacks of indifference to whether or not it succeeds. After all, it’s not as though shareholders haven’t indicated to Newco and the Barloworld board what they think about the whole package: a resounding unhappiness about both the deal and the governance surrounding it.
At first blush the R120 a share price, which was a hefty premium to recent trading levels, looked extremely tempting to most shareholders. But it wasn’t enough for UK-based Silchester International Investors, which said it didn’t reflect the group’s long-term value. Silchester made it clear it would accept nothing less than R130 a share for its 17.7% stake.
Urquhart Partners’ Richard Cheesman tells Currency he sees the deal entering something of a dead zone. “Newco will never get to 90% unless the offer is changed. It is going to be quite frustrating for all concerned.”
And what happens if the company flounders, asks Cheesman, noting that though the Russian situation may improve (Barloworld was being investigated by the US for possible “export control violations” before Trump started cosying up to Vladimir Putin), the overall trading environment could get tough. And there’s still an interim dividend due in May.
“A lot can change – between now and September – assets such as the starch business and auto-retail could be sold off,” says Cheesman.
Zahid has already indicated that its primary, if not sole, interest in Barloworld is the company’s coveted Caterpillar franchise.
‘Robust engagements’
And then there’s the Public Investment Corporation (PIC). In a break with tradition the country’s most powerful investment fund manager, which holds 22% of Barloworld, provided insight into its view on the deal. It said it voted against the offer and made public its unease with how Barloworld has managed the conflict of interest with its CEO.
“The PIC is concerned with corporate governance standards at Barloworld and the steps its board followed in considering the transaction.” The concerns have been discussed at a few “robust engagements” with the board, apparently to no avail so far but the PIC is continuing to engage.
The PIC was also unhappy about Newco limiting the black empowerment dimension to just one lucky black individual, namely Sewela. “The PIC prefers transactions that are inclusive and broad-based. The benefit of empowerment or any transactions should cover a wide range of stakeholders.”
That said, it seems the PIC has no qualms about the offer price, which it believes presents a premium to the company’s fair value.
The PIC also alluded to the strategic direction that Caterpillar has taken “to increasingly place the running of their dealerships into private hands”, seemingly hinting at the inevitability that Barloworld will be privatised.
To settle the PIC’s concerns Newco would likely have to include more Barloworld employees in the BEE stake and bench Sewela until the deal is finalised.
But there’s still Silchester and its desire for a higher price.
In all, this soap opera is far from over.
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