The Public Investment Corporation (PIC) has accepted Saudi Arabia-based Zahid Group’s $1.3 billion (R23bn) bid for Barloworld Group, but has set conditions to address its public interest concerns around the deal.
The Zahid Group has proposed a R120 per share offer, which was a 30% premium on the share price at the time of the offer, but shareholders initially voted against the bid amid claims of governance irregularity, due to the participation of its CEO Dominic Sewela as part of the takeover consortium and claims of lack of transparency in the transaction, and despite the group’s assertion that there were now governance breaches.
However, in terms of the standby offer made in February, engagements took place between the PIC, and the PIC undertook to accept the standby offer of the R23bn acquisition of Barloworld, a statement said Wednesday.
The PIC, the State-owned asset manager that manages primarily the Government Employee Pension Fund, owns 41.59 million shares in Barloworld, representing about 21.93% of the shares in issue.
This means that shareholders holding 46.93% of Barloworld’s shares have now undertaken to accept the standby offer.
To address the PIC’s broader public interest considerations regarding the offer, the bidding company said it would implement a 13.5% broad-based black economic empowerment transaction in Barloworld, after the delisting of Barloworld from the JSE and A2X.
The commitment to implement the BEE transaction will only apply if the bidding company’s squeeze-out right under section 124 of the Companies Act becomes capable of being exercised. This right allows a majority shareholder holding more than 90% of the shares, to compulsorily acquire the remaining shares from minorities.
The bidding company will also offer the implementation of the BEE transaction to the competition authorities as a merger condition, failing which PIC’s irrevocable undertaking may be terminated.
The Independent Board established to oversee the transaction wrote in February: “that management-led buyouts are not unusual in capital markets.
Whilst recognising that such transactions do present an opportunity for conflict of interest in relation to the management members involved, the Independent Board also recognises that if properly managed, they could result in positive outcomes for shareholders of the company.”
In the 5 months to end February, Barloworld’s equipment Southern Africa operations saw its revenue decline 9% to R8.8bn, while earnings before interest, tax, depreciation and amortisation (EBITDA) fell 6% to R949m. The declines were ascribed to a slow recovery in the mining sector and the impact of civil unrest in Mozambique.
In the group’s Russia business, revenue fell 25.3% to $60.3m, while EBITDA fell 83% to $2.3m due to lower activity levels and curtailed inventory supply.
Barloworld’s share price surged 3.5% on the JSE on Wednesday morning, at a time when the JSE All Share Index was up by only 0.9%, following the announcement of the PIC’s plan to accept the R120 per share offer for its Barloworld shares.
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