There’s a slightly ominous tone to the latest communication from the consortium trying to buy out the Barloworld shareholders. A sort of “give up and take the offer or else” tone. In Donald Trump language, it’s as though the consortium is holding back on a killer card it will play if forced to.
Of course, not all shareholders will interpret it that way. Those who have been keen to accept the offer since it was made in December may see it as a welcome chivvying up of the truculent 43% or so of shareholders who don’t regard the R120-a-share offer as the deal of the century.
The latest statement issued by Newco, the consortium led by the Saudi Arabia-based Zahid group and Barloworld CEO Dominic Sewela, came in response to a statement by the Public Investment Corporation (PIC). In it, the country’s largest fund manager had expressed concerns about the deal’s corporate governance processes, but said it liked the price and noted Caterpillar seems keen to be in the hands of a privately owned local dealership.
Newco has interpreted the response from its largest shareholder as something of an endorsement of the deal.
It’s a rather upbeat interpretation, given that the PIC did express concerns that could be dealbreakers if not resolved. In addition to governance (the PIC is concerned about the steps the Barloworld board followed in considering the transaction) it is also unhappy about Newco limiting the black empowerment dimension to just 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,” it said.
The concerns have been discussed at a few “robust engagements” said the PIC, which with a 22% stake is Barloworld’s single largest shareholder and will have to be comforted.
In Newco’s latest communication, spokesperson Sydney Mhlarhi says the consortium is pleased that the PIC believes the offer price presents a premium to the company’s fair value and, also that the PIC understands Caterpillar’s preference for private ownership.
“The consortium views this as supportive and will be engaging the PIC on its broad-based transformation objectives, and we look forward to concluding the discussions,” said Mhlarhi.
One BEE analyst tells Currency that, having made a bit of a fuss, the PIC will likely settle for staff being roped into the deal with a token stake of 5%-10%.
A heavy-handed approach
Mind you, the repeated mention of Caterpillar as a potential factor in the transaction is a bit troubling and hints at heavy-handedness. The prospect – albeit never mentioned – of a listed Barloworld somehow losing the Caterpillar franchise could encourage some of the shareholders to support the deal.
Without access to the franchise agreement, it’s impossible to know what scope there is for this. But it could be Newco’s killer card.
At 98 years old, Barloworld’s Caterpillar dealership has comfortably endured some extremely turbulent times. It was secured in 1927 by Punch Barlow who believed machines could out-plough a span of oxen. Turned out he was right. The Caterpillar company was just two years old at the time.
So, this relationship has incredibly deep roots.
In its statement of March 4, Caterpillar reaffirmed its support for Newco’s deal. “It is our firm belief that locally owned dealerships are best positioned to serve customers, drive sales and service growth, and tailor investments to regional requirements,” it said.
It also waxed lyrical about localisation enabling a deeper understanding of customer needs. And, said Caterpillar, there’s the added benefit of private ownership fostering long-term decision-making.
“The structure, which is pursued with the standby offer, aligns with Caterpillar’s Africa localisation and private ownership strategy.”
It’s difficult to see how a transaction, led by a Saudi Arabian company, has a positive impact on localisation but maybe that’s how things look from Texas. Additionally, there are few analysts who don’t believe Zahid, more than Sewela, will be driving the company post-transaction.
And then there’s the shareholder profile. Newco’s deal would see Sewela controlling 51% of the shares and Zahid the remainder. Hardly a resounding localisation push. Ahead of any deal, international investors make up a slight majority of the total shareholder base. Silchester International Investors, which appears to be sticking with its R130-a-share demand, and Zahid make up the bulk of those foreigners.
But perhaps Newco’s unseen killer card is the possibility of Zahid walking away from the deal without a new suitor on the horizon, leaving Barloworld in the hands of an unimpressive leadership team.
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