African Oxygen (Afrox), which has long been one of SA’s industrial bellwethers, is set to leave the JSE after having been listed for 56 years.
Founded in 1927, the gases and welding products supplier is now a subsidiary of American-German Linde, which owns 50.47%. On Friday the two companies said in a joint announcement that Linde expressed a firm intention to buy the Afrox shares it does not already own.
Afrox’s parent company was formerly BOC, a UK industrial gases group. In 2006 Linde acquired BOC in an £8.2bn takeover, creating the world’s largest gases group.
Linde now wants to buy the rest of Afrox and delist the company, its only listed subsidiary worldwide.
"Due to Afrox’s low share liquidity, which deters potential investors, Linde is of the view that Afrox is more suited to an unlisted environment and that its continued listing provides little benefit to Afrox shareholders," the company said.
Afrox’s delisting comes as the JSE struggles with a delisting crisis that is narrowing the options for SA investors. There are 250 fewer companies listed now than in 2000. In 2019, 21 companies delisted and this trend has continued into 2020, with, among others, Assore, Tiso Blackstar Group and Intu Properties delisting in recent months.
Small Talk Daily analyst Anthony Clark said that though it was sad to lose Afrox from the JSE, a delisting had been on the cards for some time.
"The best way to manage the business is to delist it, which is exactly what’s going on … There is only one buyer, which is Linde, and if it weren’t to be bought out the share price … would just consistently track sideways. It’s been a very uninspiring investment," Clark said.
"It’s sad to see what has been an industrial bellwether of this economy being delisted, but it’s the nature of the beast. I always considered the three big industrial bellwethers of this country — regarding the health of the manufacturing, industrial and mining sectors — to be Afrox, Invicta and Hudaco," Clark said.
In their joint announcement, the companies said the Linde offer would provide Afrox shareholders with a valuable liquidity event and would be implemented through a scheme transaction or a standby offer transaction.
The scheme offer will be made at a cash consideration of R21.18 for each Afrox share acquired. A standby offer would be a conditional general offer by Linde to eligible Afrox shareholders to acquire all or a portion of the Afrox ordinary shares other than excluded shares. Standby offer participants would receive a cash consideration of R21.18 per Afrox share.
The 30-day volume weighted average price (VWAP) of Afrox shares as at October 15 was R17.21. After a reduction by an amount equal to the standby offer special dividend, the adjusted Afrox VWAP is R13.39. The standby offer therefore represents a premium of 58.2% to the adjusted VWAP.
Afrox’s board will also declare a special dividend to the value of R1.18bn, subject to implementation of the buyout scheme or the standby offer. This represents R3.82 per Afrox ordinary share.
Linde said it wants to improve integration of the Afrox operations with other Linde group operations, which it believes can be better achieved and more easily expedited in an unlisted environment.
"The Linde offer will provide eligible Afrox shareholders with an opportunity to dispose of their Afrox ordinary shares for cash at a significant premium and with manageable transaction risk," Friday’s joint announcement reads.
Afrox released financial results for the six months to June in September saying the lockdown caused industrial companies to demand fewer products. But there had been greater demand from public users.
The group said it managed its cash well during the period by closely monitoring inventories and was proceeding with a 38c interim dividend, a R117m total payout, down 31% from the prior comparative period.
The liquefied petroleum gas (LPG) business’s revenue fell 11.6% to R1bn in the half-year to June, while revenue in the atmospheric gases business, about half of group revenue, fell 5.7%.
The pressure on group revenue was eased by increased demand from the health-care sector, which needed gas for temporary field hospital installations for the treatment of Covid-19 patients.
MD Schalk Venter said demand for LPG and welding products returned to 90%-95% of 2019 levels.
Afrox’s share price closed at R17.51 on Friday, down 20% in the year to date.
If the Linde offer is implemented, all Afrox’s ordinary shares will be delisted from the JSE and the Namibian Stock Exchange.
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