Standard Bank, SA’s largest bank by assets, has guaranteed a maximum of R17bn of the purchase price put forward by a consortium looking to buy industrials group Barloworld — in a deal that cements the bank’s reputation as one of Africa’s biggest financiers of corporate deals.
The proposed R23bn, which has received the backing of the board, is set to be concluded this year. Barloworld CEO Dominic Sewela is a leading figure in the consortium.
The circular published by Barloworld on Wednesday said the consideration payable for the deal would be fully funded from funds to be made available to the consortium from Standard Bank SA (SBSA).
“Newco has furnished an irrevocable unconditional bank guarantee issued by SBSA, in accordance with Companies Regulations... and enforceable by the TRP [takeover regulation panel] for the benefit of the Barloworld ordinary shareholders in which SBSA undertakes to pay up to and guarantees a maximum amount of R17,1bn, being in relation to the per share scheme Consideration, payable to the scheme participants if Newco fails to do so, pursuant to fulfilment or, where applicable, waiver of the scheme conditions,” reads the circular.
The circular also shows Rothschild & Co has given its seal of approval to management-led buyout of Barloworld, taking Sewela and his Saudi partners a step closer to ownership of one of the biggest names in corporate SA.
The endorsement by Rothschild, which was appointed as an independent expert to assess the valuation of the deal, is accompanied by Barloworld’s board urging shareholders to vote in favour of the deal late next month.
Sewela and Saudi Arabia’s Gulf Falcon Holding, whose parent company already owns 19% of Barloworld, is offering as much as R123 a share, valuing the company at just over 4.3 times its historical ebitda and handing shareholders a premium of about 90% to the average share price, adjusted for trading volumes, before the talks went public early last year. The deal values Barloworld at about R23bn.
The endorsement may assuage shareholders such as Silchester International Investors, which is pushing for a higher offer. It is demanding no less than R130 per share, not far from the stock’s peak in early 2018.
SA registered several mergers and acquisitions last year. Canal+ launched a bid to buy MultiChoice, while Lesaka Technologies acquired fellow SA-based paytech Adumo in a deal worth about $85.9m.
Frasers Group, a UK-listed retail company, also made a move for Holdsport, the parent company of Sportsmans Warehouse, Outdoor Warehouse and Shelflife.
Several high-profile deals fell through, either for failing to jump regulator hurdles or for not reaching an agreement between parties. Chief among these is BHP’s bid for Anglo America, which was rebuffed twice, and the mooted tie-up between Vodacom and Remgro’s fibre businesses, which was blocked by the Competition Tribunal.
Despite this, corporate and investment banking in SA is expected to flourish this year as business confidence rebounds. Corporates are pursuing organic and acquisitive growth and the government partnering with the private sector to roll out infrastructure.
Bank of America, in its outlook for SA’s banks, said lower interest rates would accelerate corporate and investment banking growth, particularly as private partnerships take shape.
The “Big Blue”, as Standard Bank is referred to in high finance circles due to the size of its balance sheet, estimates about R150bn of potential private investment in SA’s rail and water infrastructure and R700bn in public-private partnerships over three years.
Ratings agency S&P Global has also said it expects SA banks’ profitability to remain strong, supported by higher credit growth and non-interest income.
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