The shares of the diversified industrial group Barloworld rose as much as 10% after it said it was advancing in ongoing negotiations with a group of investors that were looking to purchase all of the issued common shares in the company.
Acting through a recently formed special purpose vehicle called Newco, the consortium is ultimately made up of Entsha, a recently incorporated SA company owned by The Katlego Le Masego Trust owned by CEO Dominic Sewela and his family, which will have the opportunity to exercise 51% of the voting rights in Newco.
Falcon Holding, a subsidiary of the Saudi Arabia-based diversified conglomerate Zahid Group, which owns an effective 18.9% stake in Barloworld makes up another part of Newco.
“The consortium is currently negotiating the terms of the proposed transaction with these shareholders,” Barloworld said. “At this stage, no firm intention to make an offer has been communicated by the consortium, and there can be no certainty that a firm offer will be made.”
By market close on Friday, Barloworld’s share price had gained 6.05% to R87.71. This was its largest one-day increase since April 15, when it initially informed shareholders it had begun talks that, if successful, might materially affect the price of the company’s stock.
The distributor of Caterpillar equipment said the board of directors, chaired by Nolulamo Nobambiswano Gwagwa, established an independent board shortly after receiving the consortium’s initial approach in April to communicate and discuss the proposed transaction.
To address any concerns that might arise from the CEO’s involvement in the consortium and the proposed transaction, Barloworld said the independent board had established clear and improved governance procedures.
“These protocols have served to ensure that the business continues to be run efficiently and in the best interests of all shareholders and the company while mitigating any potential conflicts between the proposed transaction and the day-to-day running of the company’s operations,” Barloworld said. “The independent board is confident that sufficient safeguards have been put in place to ensure that the company is managed with minimal disruption,” it said.
Barloworld said the consortium had also wall-crossed a small number of owners in confidence. Companies may share sensitive information about a targeted company with a limited number of investors before a public announcement to gauge interest and get feedback from potential investors before a public offering.
Barloworld has 400-million authorised shares, of which about 190-million are issued shares.
The interest in buying the group, valued at about R16.5bn, comes despite the industrial major recently raising concerns about possible penalties for alleged export breaches in its Russian operations.
In September the group flagged possible export control violations at its Vostochnaya Technica (VT) Russian subsidiary to US authorities after an initial internal analysis.
However, Barloworld has hoped for less severe penalties by being proactive and voluntarily self-disclosing to the US department of commerce’s bureau of industry and security (BIS) about possible export control breaches at its Russian subsidiary.
The group said earlier its earnings for the year to end-September were expected to fall by as much as a fifth owing to an exclusion of the car rental and leasing business, Zeda, and the disposal of its logistics company, which were both included in the prior period as discontinued operations.
The industrial equipment, services, and consumer industries firm said group basic headline earnings per share (HEPS) were expected to fall by 20.1%-21.6% to 1,012.1c-1032.1c. Basic HEPS for continuing operations are set to be as much as 12.5% lower at 1,012.1c-1,032.1c from the 1,156.3c reported at the end of September 2023.
“The decrease in the group results is as a result of the exclusion of these discontinued operations in the current reporting period,” Barloworld said.
Zeda was successfully unbundled and separately listed on the JSE on December 13 2022 where it now boasts a R2.7bn market capitalisation. Barloworld’s logistics business was successfully disposed of at the end of March 2023.
Group results for the year to end-September are expected on or about November 25.
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