Dominic Sewela’s bid for Barloworld is a textbook case of a corporate governance nightmare. The CEO’s attempt to spearhead a R23bn management-led buyout is a case in point.
Earlier this week, shareholders voted down the R123 per share deal that valued the company at about 4.3 times its historical ebitda but a generous 90% higher than the stock average value adjusted for trading volumes, before the buyout talks went public almost a year ago.
The argument here isn’t that Sewela’s intentions were malicious. No, his pursuit of a Barloworld buyout alongside Saudi Arabia’s Gulf Falcon could well be driven by genuine strategic motives. Social justice activists such as the Black Business Council would have nodded in approval.
Still, the act of juggling the responsibilities of a CEO while eying the prize as a key buyer introduced an inherent bias. The situation mirrors other high-profile deals, such as Michael Dell's buyout of Dell, where the line between corporate duty and personal gain was blurred beyond recognition.
Granted, the independent board erected governance barricades — non-disclosure agreements, conduct protocols and unconflicted executives’ steering committee. These safeguards were enough to win the backing of the board, which gave its seal approval earlier this month.
It is also true that Rothschild & Co, which was appointed as an independent expert to assess the valuation of the deal, endorsed the transaction. Using the sum of the parts method, Rothschild aggregated the fair value of Barloworld’s sprawling business, including its Southern Africa and Mongolia earthmoving equipment operations and its consumer industries segment.
It also used the discounted cash flow approach, weaving together historical and forecast financial data and considering every possible variable from price and volume growth to market dynamics, GDP, inflation, margins and discount rates.
Rothschild did not value Barloworld’s Russian unit as a regular business because of the war in Ukraine and subsequent sanctions. Instead, it focused on the potential to repatriate money and foreign exchange controls. For lesser-known subsidiaries and investments, it used the carrying value and sense-checking against peer companies. It arrived at a valuation range of R105.53-R119.42 a share, well below Sewela and his partner’s offer, giving the board confidence to rally shareholder support for the offer.
Even so, the shadow of doubt loomed large. Sewela's dual role created an inherent bias that underscores the crucial aspect in corporate governance as per the latest non-legislative guidelines under the King Code: independence is as much about perception as it is about reality.
To add doubts about his independence, shares in the company peaked at R150 in 2018 before sliding to about R60 per share before the deal was made public. Sure, external factors played a role, but Sewela cannot escape valid questions about the integrity of the information spigot, which influences the stock price and over which, as CEO, he holds control.
Now, an alternative scenario where Sewela had stepped aside during the negotiation process. His resignation, even if temporary, would have signalled a robust commitment to fairness and transparency. That decision would have resonated powerfully within and beyond the corporate world, which is increasingly in the news for malfeasance.
Sadly, reality often defies such utopian constructs. The Sewela-Barloworld saga is a cautionary tale — a reminder that governance protocol, no matter how meticulously designed, can only go so far in mitigating inherent biases.
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