Ratings agency Moody’s has upgraded takeover target Barloworld’s creditworthiness, saying the company would be able to maintain adequate credit metrics despite a downturn in the commodity cycle, “which has caused a decline in demand for heavy equipment in its main market of Southern Africa”.
Moody’s assigned a stable outlook on the industrial stalwart, saying that reflects its outlook on SA’s sovereign rating, where the company generates the majority of its revenue and cash flow.
“The stable outlook also reflects our expectation that Barloworld will maintain adequate credit metrics through the commodity cycle and the potential acquisition and delisting of Barloworld transaction,” it said, referring to a bid launched by a consortium led by group CEO Dominic Sewela.
US earthmoving equipment manufacturer Caterpillar, a key supplier for Barloworld, has also come out in support of the bid to take the group private in a deal that values the group at R23bn.
The support of Caterpillar, which has been in a relationship with Barloworld for nearly a century, adds pressure on dissenting shareholders.
Sewela and Saudi Arabia’s Gulf Falcon Holding, whose parent company already owns 19% of Barloworld, are offering as much as R123 a share, valuing the company at just over 4.3 times its historical earnings before interest, tax, depreciation and amortisation. That's a premium of about 90% to the average share price, adjusted for trading volumes, before the talks became public early last year.
Barloworld, worth R21bn on the JSE, said on Thursday the consortium’s offer was final, and had received further support from stakeholders.
“Newco is delighted that Caterpillar, a key supplier and important revenue driver for Barloworld, has expressed its support for the proposed transaction,” it said in a statement.
Caterpillar is the main revenue driver for Barloworld, accounting for 83% of revenue for the 2024 financial year.
‘Fair and reasonable’
Independent financial advisory group Rothschild & Co has said the consortium’s offer and the per share scheme consideration are “fair and reasonable”.
Barloworld would need the support of 75% of shareholders to push the deal over the line. However, London-based Silchester International Investors, which holds about 18% of Barloworld has expressed its opposition to the offer, questioning Sewela’s role in the bid.
Silchester director Tim Linehan said the company’s stance on the offer has not changed despite Caterpillar’s support and they will vote against the offer.
“Silchester would like the consortium to confirm, in writing, if the acceptance threshold for the standby offer will be changed. The wording in the circular allows them to vary the acceptance threshold,” Linehan said.
“The JSE should require the consortium to announce, prior to the deadlines for shareholder votes being lodged, whether the consortium will reduce the acceptance threshold from 90% to some lower figure. This is a material fact that is particularly relevant to smaller shareholders. We look forward to the publication of the final voting results.”
Barloworld traces its roots to 1902. The relationship between the group and Caterpillar began in 1927, making Barloworld the first Caterpillar dealer in SA. Early Caterpillar machines were used in applications such as agriculture, mining, and roadbuilding.
“Barloworld as an unlisted business will provide a more efficient platform that will support the pursuit of the company’s existing long-term industrial growth strategy, which is expected to deliver significant value for all stakeholders. This is a view shared by Caterpillar,” the consortium said.
“Further to the ‘no increase’ announcement this morning [Thursday], Newco’s offer to Barloworld shareholders of R120 per share has received further independent support from leading independent proxy advisers, ISS and Glass Lewis, who have recommended that Barloworld shareholders vote for the transaction,” it said.
“The offer of R120 per share is compelling and provides shareholders with certainty of an attractive premium to the company’s share price and an opportunity to realise immediate value for their shares, in cash, in what is an uncertain market.”
Standard Bank has guaranteed a maximum of R17bn of the purchase price proposed by the consortium, cementing its reputation as one of Africa’s biggest financiers of corporate deals.
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.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.