Is Barloworld’s BEE deal about to fall over? 

Barloworld’s much-touted broad-based BEE promises seemed to fade into the distance during the Competition Tribunal’s latest hearing into a fraught buyout bid. 

The Newco consortium, which owns 23% of Barloworld and is led by Saudi Arabia’s Zahid Group and Barloworld CEO Dominic Sewela, has offered R120 per share to take the company private.  

This offer had the backing of the Public Investment Corporation (PIC) and the approval of the Competition Commission – on the grounds that Newco will implement a BBBEE deal involving at least 10% of the company’s shares.    

And realising these promises within the next two years is dependent on one of Barloworld’s largest shareholders – UK-based Silchester International Investors, with 17.2% – reversing its previous opposition to the deal and accepting Newco’s R120 a share.  

Problem is, there’s been no indication that this has happened or is likely to happen, though Silchester is playing its cards very close to its chest. 

The PIC-backed proposal would see an as-yet unidentified women’s BBBEE group allocated a 5% stake and employees allocated an additional 5% through an employee share ownership scheme. 

But there’s a proviso: the shares will only be allocated when Barloworld is delisted. However, a delisting will only happen if Newco receives sufficient acceptances to take its holding to at least 90%. At that level regulations entitle it to squeeze out the remaining shareholders and take the company private.  

During various tribunal hearings, counsel for Newco has indicated it is confident of reaching the 90% target. 

Yet Silchester – which indicated in February that it would only sell out at R130 a share – told Currency shortly after this week’s hearing it “has not had any substantive discussions with the consortium in the past six months”. During the hearing, counsel for Newco continued to express confidence in reaching the 90% target.

Still, Tim Linehan a spokesperson for Silchester, told Currency that recent disclosures by Barloworld and commentary from other shareholders make it more rather than less likely that the consortium’s efforts to privatise Barloworld will succeed. (Make of that what you will. And if you’re any the wiser let us, here at Currency, know.) 

“This reflects negatively on Barloworld’s management and the independent board.  It also damages South Africa’s reputation as an investment destination for international investors,” added Linehan without shedding any light on Silchester’s current plans for its stake. 

The delisting issue

Meanwhile, the trade union representatives attending the hearing – from the Food and Allied Workers Union (Fawu), and the National Union of Metalworkers of South Africa – seemed to become increasingly despondent as the minutes ticked by during Wednesday’s hearing.  

Fawu representative Lancelot Twala told the meeting that while the need for a delisting had been mentioned, it was not considered to be a significant matter, until now. “Today as we listen, it seems the chances of a delisting not happening are a concern … workers were excited to be participating in the transaction but now there’s a chance it mightn’t happen,” said Twala adding: “Are there any means we can ensure workers will benefit?”  

At the hearing, counsel for Newco, Shawn van der Meulen told the tribunal it would be “prohibitively expensive” to allocate 10% of Barloworld to BBBEE parties if the company remained listed.  

Andreas Wessels, who was chairing the tribunal hearing, asked Van der Meulen if Newco had a clear intention to get 100% of Barloworld. “And if not now, when?”  

Van der Meulen replied that it certainly was Newco’s intention to reach 90% but added that if the 90% wasn’t reached, there were other avenues to acquire additional shares. “Newco could put a new offer to shareholders … also Newco could continue to acquire shares on the market, subject to JSE approval,” said Van der Meulen. He said Newco was “quietly confident” of reaching the 90% target. 

However, Van der Meulen told the tribunal that regulations require Newco to wait for six months before making a second offer. (In fact, takeover regulations prohibit an offeror from launching a new offer for 12 months.) 

Despite the uncertainty of the BBBEE inclusion, the Competition Commission’s approval still seems in place.

And so, it’s down to the PIC to commit to its initial conditions of support and insist on the allocation of shares to the unions and a broad-based black women’s group. Or the deal will be just another exclusive opportunity for well-placed individuals. 

The PIC did not respond to a request for comment from Currency.  

(The Barloworld Foundation, set up several years ago with a 3.5% stake in the company, will remain a BEE shareholder after the transaction.) 

_{Top image: Currency collage.}