You might have thought one reasonably safe place to be during the turbulence that was unleashed on global markets last week was a share like Barloworld, where its price was underpinned by a firm takeover bid.
But, no, it seems nothing offered refuge from the market chaos caused by US President Donald Trump’s idiosyncratic approach to trade tariffs. Not even Barloworld: it shed about 6% to a smidgin over R100 in the wake of the tariff announcements. Investors were apparently unpersuaded by the attractions of the R120 on offer from the Newco consortium.
It wasn’t just Barloworld. MultiChoice also failed to provide any shelter from the Trump tornado despite the R125-a-share offer from France-based Canal+. The entertainment group has slid 6% in the past week.
African Rainbow Capital (ARC) had a somewhat indecisive week but rallied in the later stages and at 925c is not far off the 975c being extended to minorities by the controlling shareholders. That buyout price is a significant step down from ARC’s reported net asset value of R12.78 but still represents a 12% premium on the pre-announcement price.
And then there’s Bell Equipment, which of course doesn’t currently have an offer outstanding, but where the controlling Bell family are known to be keen on buying out the minorities. Recall that last year a bid to take out the minorities at R53 a share was rejected by shareholders who believe its earnings potential – under the right management – justifies a far more generous offer.
Since the deal was rejected the Bell share price has slumped to below R40 and it shed a few more percent in the wake of Trump’s tariff moves. Surprisingly, investors seem not to believe that, with an evidently interested buyer in the wings, the share represents a reasonably attractive haven.
It seems there are two major forces at play here. One is that a deal is not done until all the shareholders have voted and every regulator has signed off on it.
The second is that we’re in unprecedented times. As one trader tells Currency, it’s been almost impossible to know what will happen from one hour to the next. He adds that it also takes time for investors to work out the likely impact of tariffs on individual shares.
These two forces came together last week and, not surprisingly, investors were left without much appetite for purchasing anything.
An age of uncertainty
Richard Cheesman of Urquhart Partners reminds Currency that, even before it gets to the regulators, the Barloworld deal is riddled with much uncertainty. Chief of these uncertainties is whether or not Newco – led by Saudi Arabian group Zahid and Barloworld CEO Dominic Sewela – will waive the condition that the offer must receive acceptance from 90% of the minority shareholders.
That 90% condition must be fulfilled or waived by Newco by May 9. Given that UK-based Silchester International Investors, which holds 17.7% of Barloworld, has categorically rejected any offer under R130 a share, the 90% condition cannot be fulfilled.
Silchester is not saying whether it has revised its stance in the wake of the Trump turmoil. In fact, it is not saying anything at all. “Silchester is not offering any comment on Barloworld at this time,” director Tim Linehan told Currency this week.
If the 90% condition is not fulfilled, Newco could walk away from the deal – by refusing to waive the condition. The consortium might decide that owning a major Caterpillar franchise in the era of Trump is not such an attractive proposition. If it walks, the Barloworld share price would likely plummet.
Alternatively, Newco might feel Tim Linehan owning a high-profile US brand in the Trump era is precisely what you need.
All in all, lots more uncertainty.
The deadline for fulfilment of all the Barloworld conditions is September. That’s assuming all the necessary regulatory approvals have been obtained, which seems unlikely given the pace at which the competition regulators work. The deadline will be automatically extended by three months if there are outstanding approvals.
Over at MultiChoice, the deal is still awaiting regulatory approvals. Cheesman reckons if the necessary approvals are not secured and the deal is abandoned, the MultiChoice share price could lose a third of its value or more. This would take it to below the pre-announcement level of R75.
He says the market is pricing in roughly a two-thirds probability of the deal being completed.
Likewise, if the Barloworld deal is abandoned, the adverse impact on the share price will be significant. The current market valuation reflects an implied chance of about 60% that the deal will close, says Cheesman.
All this uncertainty explains why investors aren’t regarding these targeted companies as havens in this time of turmoil.
But for those who do have the nerve, Cheesman says the potential returns are extremely attractive – an annualised 35% in the case of Barloworld, if the September deadline is met, and more than 17% for MultiChoice.
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