Barloworld CEO ‘no longer aligned’ with shareholders

Barloworld shareholder Silchester hits out at the company’s board over CEO Dominic Sewela’s buyout bid.
2 mins read

Silchester International Investors, the third-largest shareholder in Barloworld, has confirmed its previous view that it does not see the R120 a share offer for Barloworld, made by a consortium that includes CEO Dominic Sewela, as “compelling”. What’s more, it has slated the Barloworld board for having “failed to fulfil their fiduciary responsibilities to shareholders by allowing the CEO to continue to exercise authority despite the inherent conflicts of interest arising from his participation in the offer”.

On Wednesday evening Silchester, which holds 17.7% of Barloworld stock, said it would vote against the proposed scheme to buy out shareholders and noted that “the scheme is unlikely to succeed without Silchester’s support”. 

Saudi Arabia-based conglomerate Zahid, which is bidding for control of the company with Sewela’s Entsha, holds 18.9% of Barloworld, while the Public Investment Corporation holds 18.1%. 

Given there was only 8% in the difference being asked by Silchester and that the R120 represented an undemanding price earnings rating, many commentators assumed the consortium would lift its offer to meet Silchester’s requirements. 

However, the consortium held firm, seemingly believing the hefty premium to the pre-offer market price was sufficient to ensure the necessary shareholder support. Details of the offer contained in the circular sent to Barloworld shareholders last week revealed an unchanged R120 a share. Silchester wants at least R130.

The scheme’s success requires 75% of the non-consortium shareholders to accept the offer. Silchester also intends voting against a standby offer detailed in the circular, unless there is a “material change in the terms” of the offer. 

Seeking clarity

While it is clear that the scheme will not succeed without Silchester, it is less clear what will happen to the standby offer detailed in the circular. According to the circular more than 90% of Barloworld shareholders must accept the offer if the consortium wants to proceed with its plans to delist and privatise Barloworld.  

If less than 90% accept, the consortium can proceed with the transaction but, as things stand, will not be able to delist the company. What will be crucial will be the number of shareholders who remain with the company. Fewer shareholders mean less liquidity in the share. Silchester may be put under pressure to exit if it is the lone “minority” shareholder and the JSE forces the company to delist. A fact darkly alluded to in the offer circular. 

Silchester has called on Barloworld, the independent board and the JSE to clarify the exact terms of the standby offer. It also wants to know “whether amendments will be made, including any increase in price and/or change to the 90% threshold”. It says that information is needed for shareholders to properly evaluate their options before voting at the upcoming meetings. 

Investors will be asked to vote on the scheme on February 26, as well as on other resolutions – including the independent directors’ remuneration – which Silchester says it will be voting against, as “no remuneration is appropriate”. 

Silchester says it is a long-term investor in the group and is bullish about its prospects. “The last few years have been challenging for Barloworld and its stakeholders. Despite these difficulties, Silchester believes that Barloworld – with new management, a new CEO, a reasonable board of directors and proper allocation – is well placed to succeed.” 

However, it has “encouraged” the board and its independent directors “to prepare appropriate plans in the likely event that the scheme of arrangement fails”.

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Ann Crotty

Winner of just about every financial journalism prize going, Ann has kept the business sector on its toes for years. Uncompromisingly independent, if there’s a shady executive pay plan out there or shenanigans a company is trying to keep hidden, Ann will find it.

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