Barloworld buyout a step closer as PIC caves 

Africa’s largest asset manager, the Public Investment Corporation (PIC), has stuck to its guns and extracted a Black Economic Empowerment (BEE) deal worth R3bn from the consortium wrangling to buy Barloworld.  

The Newco consortium, led by Saudi Arabia’s Zahid Group and Barloworld’s CEO Dominic Sewela, offered to buy out shareholders in the 123-year-old industrial company for R120 per share last December in a landmark deal valued at R23.3bn. 

But Newco has struggled to win over investors, with some arguing it is offering far too little to secure control of an industrial blue-chip firm.  

On Wednesday, however, the scale tilted in its favour when Barloworld said the PIC would vote its 22% stake in support of the bid, in exchange for the company’s commitment to implement a BEE deal. 

The transaction, which will see an as-yet unspecified Black-owned group buy 13% of Barloworld, will only be implemented after Barloworld has been delisted. 

U-turn, we turn

This is a U-turn for the PIC, which initially suggested it would not support the offer, since it prefers “inclusive and broad-based” deals. The PIC said it was also “concerned with corporate governance standards at Barloworld”, which was understood to be a reference to Sewela remaining as CEO while the deal was being negotiated.  

It was a concern echoed by other investors, who questioned how Barloworld’s board could have allowed Sewela to remain as CEO of a company he was simultaneously negotiating to buy.  

Now, even though Sewela’s position has not changed, the PIC’s concerns on governance appear to have been shelved in exchange for an offer of a BEE deal. 

On Wednesday, Barloworld said the Newco consortium now had support from 46.93% of Barloworld shareholders. This includes Newco’s 23% holding and the PIC’s 22% stake, implying a limited take-up from other shareholders to date. 

After the deal was announced, a group of UK investors speaking for 17.7% of Barloworld, Silchester International Investors, said they would not sell for anything less than R130 per share.  While Newco has conceded ground on the deal structure, it has shown no willingness to raise the offer price.  

The Silchester question

Asked for comment on the PIC’s acceptance, Silchester’s Tim Linehan told Currency, “We are not making any comment at this time”. 

Urquhart Partners’ Richard Cheesman told Currency that the low level of acceptance from other shareholders at this point is no surprise,  given the drawn-out structure of the deal. “It’s understandable that most shareholders haven’t accepted yet – there’s no reason to, at this stage,” Cheesman said.  

The offer will only be declared wholly unconditional in September, and even that date might be extended. Next month, however, there are two critical developments set to take place on which the transaction’s fate hinges. 

On May 9, Newco must announce whether it will waive the condition that at least 90% of shareholders accept the offer. And, around that time, Barloworld will also release its financial results for the six months to the end of March.  

Those results will show whether Barloworld is on target to reach a minimum of 85% of the EBITDA (earnings before interest, tax, depreciation and amortisation) for the year to October 2023  – one of Newco’s conditions for the deal to proceed. Barloworld’s Russian operations are excluded from that target.  

A trading update for the five months to the end of February, released last month, suggests the group is well on target.  

Cheesman said Newco’s willingness to put in place a new BEE deal indicated its continued enthusiasm for the deal. “They obviously haven’t been rattled by the recent volatility in global markets.”  

One analyst told Currency he was surprised by the large size of the BEE stake, which is valued at around R3bn, equal to R16 per Barloworld share.  

Although substantial, a 13.5% Black ownership stake does fall short of the 25% minimum stipulated in the BEE codes. Still, he said, this 13.5% of the wider Barloworld probably equated to about 25% of Barloworld’s South African operations.