By Roy Cokayne.
UK-based Silchester International Investors, a major investor in JSE-listed Barloworld, does not believe the offer from the consortium that is proposing to buy out all the ordinary shares in the JSE-listed group is “compelling”.
A firm offer by the consortium last week values Barloworld at R23 billion and comprises a cash offer of R120 per share that will not be reduced by the R3.10 per share dividend already declared by Barloworld on 22 November.
However, Silchester director Tim Linehan said the firm is unwilling to tender its Barloworld shares unless the consortium offers at least R130 per share.
Linehan said a full privatisation of Barloworld is unlikely to succeed without the support of the group’s primary shareholders, including Silchester.
Silchester owns 33 531 795 ordinary shares in Barloworld, which represents 17.7% of Barloworld’s issued share capital.
The consortium comprises Entsha and Gulf Falcon Holding Limited, a wholly-owned subsidiary of the Zahid Group, a multidisciplinary conglomerate headquartered in Saudi Arabia and an effective 18.9% shareholder in Barloworld.
Entsha is a newly incorporated company that is ultimately owned by The Katlego Le Masego Trust, an inter vivos trust established for the benefit of Barloworld CEO Dominic Sewela and his family.
The scheme of arrangement requires the support of 75% of eligible voters who participate in the meeting – in their own capacity or by proxy – for it to succeed.
The holders of about 22.92% or 43 367 048 of Barloworld’s shares are not eligible to vote on the proposed transaction.
These excluded shares are those held by the Zahid Group (35 834 624), Barloworld Foundation (6 578 121), Dominic Sewela (653 207) and Katkego Le Masego Trust (401 096).
Lineham said Silchester intends to exercise all rights available to shareholders in South Africa to protect the financial interests of Silchester’s clients.
He confirmed that Silchester was wall-crossed by the consortium on 26 October and had several discussions with it about its potential bid for Barloworld.
“Silchester repeatedly advised the consortium that Silchester was unwilling to tender its Barloworld shares unless the consortium offered at least of R130 per share, “said Lineham.
Silchester’s last communication with the consortium took place on 19 November 2024. No subsequent discussions with the consortium have taken place.
“The [Barloworld] independent board was [also] advised that Silchester was unwilling to tender its Barloworld shares at a price below R130 per share.”
Challenging years for the group
Linehan said the last few years have been challenging for Barloworld and its stakeholders.
“Despite these difficulties, Silchester believes that Barloworld with new management, a reasonable board of directors and proper capital allocation, is well placed to succeed in the coming years,” he said.
Silchester declined to comment on several questions posed by Moneyweb, including:
- If there are any other reasons apart from a minimum R130 per share offer price for Silchester to support the offer from the consortium;
- If Silchester has any concerns about the process followed by Barloworld with this proposed transaction, particularly the alleged conflict of interest of Sewela; and
- The reasons Silchester believes Barloworld needs a new board of directors and management and what its concerns are about Barloworld’s capital allocation.
The Public Investment Corporation (PIC), SA’s state-owned asset manager, owns 18.1% of Barloworld’s shares and is the group’s second-largest shareholder.
The PIC was coy in its response to questions from Moneyweb about whether it intends to vote in favour of the offer.
The PIC said on Friday it has noted the proposed buyout of all of Barloworld’s ordinary shares by a consortium of investors and the statement from Silchester International Investors.
The PIC will not make any public comments, given that Barloworld is a listed company and susceptible to price sensitivitys,” it said.
The PIC prefers to engage investee companies and boards directly on all matters relating to its investments.”
Barloworld previously declined to comment on questions related to Sewela’s alleged conflict of interests, including the date on which the independent board was established and for further details about the governance protocols implemented because Sewela is a member of the consortium.
Timeline and ‘governance protocols’
The firm offer announcement published last week said the consortium initially approached Barloworld in late February 2024, with an indicative non-binding offer.
It added that in line with takeover regulations, “Barloworld immediately established an independent board” and appointed advisors with whom it is working to ensure that the proposed transaction is appropriately considered.
“The independent board implemented governance protocols to ensure adequate safeguards were in place to address potential conflicts of interest and governance concerns around the CEO’s involvement in the proposed transaction.
“A clear protocol was agreed between the CEO and the independent board which governs how he must conduct himself during this period, providing a clear delineation of the day-to-day operations of the company and the proposed transaction.
“The CEO was recused by the board from all Barloworld related issues on the proposed transaction and a steering committee consisting of select non-conflicted executives of the company and the appointed advisers, and which does not include the CEO, was constituted,” it said.
These governance protocols have served to ensure that the business continues to be run efficiently and in the best interests of all shareholders and the company, whilst mitigating any potential conflicts between the proposed transaction and the day-to-day running of the company’s operations.”
Independent board chair Dr Lulu Gwagwa said: “After many months of facilitating a rigorous and clear process, the independent board, having assessed the preliminary view of the independent expert, supported by its appointed advisors, intends to recommend that shareholders vote in favour of the scheme of arrangement.”
Confidential engagements
The consortium confirmed to Moneyweb on Friday that it received regulatory approval to engage confidentially with a limited number of shareholders to ensure that their views are taken into consideration.
However, the consortium declined to comment on the level of support it has received from the Barloworld shareholders who were “wall-crossed” or the total percentage shareholding of Barloworld shares that are held by the shareholders in Barloworld who were “wall-crossed”.
It said this information is not public as yet and it is therefore unable to disclose this information.
However, the consortium claimed that it received sufficient comfort around shareholder support for the proposed transaction to enable it to proceed to the firm intention announcement.
‘Suspicious’
An analyst who did not want to be named and was previously extremely critical of the proposed transaction because of Sewela’s alleged conflict of interest, said on Friday “the whole way Barloworld has handled the proposed transaction is quite suspicious”.
He questioned why, if Barloworld had in February already established an independent committee to consider the proposed transaction, it did not disclose this at the time in its cautionary announcements.
That is what any decent board of directors or anyone who understands their fiduciary duty would have done. So why didn’t they do it?”
He added: “I can understand if they didn’t think it was a real offer but then you don’t form an independent sub committee.”
Barloworld published its cautionary announcement about the proposed transaction on 15 April 2024 and renewed it on 27 May 2024, 10 July 2024, 22 August 2024 and 4 October 2024 before its cautionary announcement published on 15 November 2024 provided details about the proposed transaction and the consortium.
Last week’s firm announcement suggests the independent board was established either in late February or early March 2024, a month before Barloworld issued its first cautionary announcement about the transaction and nine months before it confirmed that it had appointed an independent board to consider the proposed transaction.
The analyst said the inference to be drawn if the consortium has not disclosed any commitments from those it consulted is that “they have no commitments to support the deal from any of the wall-crossed shareholders”.
He admitted this could be an incorrect inference but questions why the consortium would not disclose any commitments it has received from Barloworld shareholders.
Shares in Barloworld rose 0.04% on Friday to close at R109.95 per share, a more than 10% discount to the consortium’s R120 per share offer price.