The Public Investment Corporation (PIC) has reversed its earlier resistance to the R23bn takeover of Barloworld in a twist to a high-profile management-led buyout offer that also met broader shareholder rebellion earlier this year.
The change of heart from the PIC, Barloworld’s largest shareholder with a 22% stake, or about 42-million shares, injects renewed momentum into the bid.
Initially, PIC, alongside shareholders holding more than 60% equity in Barloworld, had held back support over fears that CEO Dominic Sewela’s dual role as both CEO and a key figure in the acquisition team presented a potential conflict of interest.
The rejection of the deal in February triggered the standby offer under Sewela and Gulf Falcon Holding, a unit of Saudi-based Zahid Group committed to buying shares that remain unsold after the initial offer.
With the PIC’s stake now lined up in favour of the offer, the Sewela-led team has secured nearly half the shareholder base when combined with the shares already controlled or commitments by the buyers.
In fact, including the PIC’s block and prior irrevocable commitments from shareholders, the consortium and the Barloworld Foundation, about 47% of the company’s issued shares are committed to the offer.
Still, Sewela and the Saudis are far from the 90% threshold needed for a mandatory buyout. A top-five shareholder, Silchester International, has been pushing for a higher offer, demanding no less than R130 a share — not from the stock’s peak in early 2018 but well above the valuation range by a board-appointed independent expert. The standby offer remains open, though Newco retains the right to waive this requirement.
The PIC’s backing, which came after engagements with the consortium, is not without conditions. The consortium has committed to implementing a 13.5% broad-based BEE transaction in Barloworld if the company is taken private. The BEE undertaking directly responded to the PIC’s earlier critique that the deal lacked inclusivity.
If Barloworld remains listed, the BEE transaction will not proceed, as Newco deems it impractical in a listed environment. In that scenario, the PIC will keep a portion of its shares in Barloworld to maintain its required exposure to the company within its R3-trillion portfolio.
Adding another layer of complexity to the transaction, the consortium has made the BEE deal a formal condition to the deal when submitting it for approval to competition authorities and, should the watchdog reject it, the PIC may withdraw its support.
“The support of the PIC for the standby offer is another important milestone,” said Sydney Mhlarhi, spokesperson for the consortium. “This transaction is not only a demonstration of our belief in the business and confidence in SA as an attractive investment destination, but also our shared commitment to align with national interests to drive meaningful economic inclusion and equity.”
The buyout, valuing the company at R23bn, offers shareholders a total value of R123.10 a share, including the previously declared R3.10 dividend.
It has won a seal of approval from Rothchild & Co, an independent expert, which arrived at a valuation range of between R105.53 and R119.42 a share.
The deal has garnered support from key stakeholders, including Caterpillar, Barloworld’s primary supplier and a key revenue driver, which has publicly endorsed the standby offer and the prospect of local ownership.
The support from both Caterpillar and the PIC could be seen as a vote of confidence in Newco’s plans for Barloworld’s future.
The offer is open until September 11 and can be extended if needed.
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