Barloworld delay casts doubt on deal

Well, an offer for Barloworld initially touted as too good to be rejected seems to be getting the cold shoulder from shareholders.

With minimal acceptance of the bid by the original May 9 deadline, the Newco consortium behind the R120-a-share offer needed more time. Without an extension or the waiving of a key condition, it had no hope of securing control of the storied South African industrial group.

On Friday, Barloworld’s independent board announced it has agreed to give Newco until June 30.

However, it’s possible that the extra breathing room still won’t be enough to secure the deal. The latest Sens announcement indicates the buying consortium is aware that shareholders are not entirely enamoured with its conditional offer. 

“Newco has indicated that on or before June 30 2025, it will assess the level of acceptance received and decide whether or not it wishes to waive the acceptance condition and proceed with the standby offer,” the Barloworld statement said.

The acceptance condition, which is that 90% of shareholders other than Newco and related parties take up the offer, is proving to be a major stumbling block and has added unnecessary complexity to the deal. It has certainly taken the shine off what was first considered an attractive proposition.

The announcement reveals that the level of support for the deal – which seemed a slam dunk when it was made in December – is unchanged at 46.93%. That figure includes the members of the Newco consortium, with a combined 23%, and the 22% held by the Public Investment Corporation (PIC). It is the same level announced in late April when the PIC undertook to back the transaction, on the basis that a broad-based Black economic empowerment deal be implemented.

It’s impossible to know if the unimpressive level of acceptance for the R120-a-share offer for Barloworld reflects growing disenchantment with the price, confusion due to the conditionality of the deal, or the realisation that there is little point in tendering shares until closer to a firm deadline.

In what appears to reflect the general confusion around the deal, Barloworld attributes some of the poor response to seemingly truculent brokers and central securities depositary participants (CSDP), which hold shares on behalf of investors, process transactions related to trades or handle corporate transactions, such as voting.

“The company received several inbound queries from Barloworld ordinary shareholders who indicated to their CSDPs or brokers that they wish to accept the standby offer but have been advised that they will only be able to do so at a later stage,” said Barloworld, adding that there is no lawful basis for a CSDP or broker to delay in accepting the standby offer on behalf of shareholders.

“CSDPs and brokers must review their processes to ensure that instructions in relation to the standby offer are processed without delay and appropriate information is sent to the relevant shareholder once their instructions have been processed.”

However, Urquhart Partners’ Richard Cheesman tells Currency: “Investors usually wait until the last minute to accept a deal, then it’s a rush.”

Cheesman is unsure what to make of the “warning” to hesitant shareholders that if sufficient acceptances are not received by June 30, the offer might fail. “It sounds like a bold statement, but it could just be a negotiating ploy,” he says.

Complex dealmaking

Things certainly haven’t been helped by the general increasing levels of regulatory involvement in dealmaking. “Conditions and time frames are getting longer and longer,” one rather disgruntled Barloworld shareholder tells Currency.

There’s also the uncertainty created by appraisal rights, which are intended to protect minority shareholders.

All of this ensures that dealmaking is becoming more complex and uncertain.

Worst of all, because regulators must sign off on the deal, the eventual payment to shareholders could be several months or more after the deal has been finalised.

For Barloworld shareholders who might have thought the 30% premium on the share price back in December looked extremely attractive, the prospect they will only receive the money 18-24 months after December’s announcement inevitably reduces the attraction.

It’s not just about time-value-of-money, it’s the fact that shareholders will not be receiving dividends during this open-ended period.

No doubt, an unnecessarily complicating factor is Newco’s condition that 90% of shareholders (excluding Newco) must accept the offer. In Friday’s Sens announcement, Barloworld confirmed that Newco would not waive this condition. Evidently, Newco is hoping come June 30, enough shareholders will have had a change of heart.

This seems unlikely given the apparently implacable stance of one of Barloworld’s largest shareholders, UK-based Silchester International Investors, which holds 17.7% of the group. It rejected the offer and said it was unwilling to sell for anything less than R130 a share.

The disgruntled Barloworld shareholder, who says he is watching Silchester to see what action it will take, urged Newco to pay the additional R10 a share.

“It would promptly cement the deal and would probably be cheaper than paying an army of advisers fumbling with a dragged-out offer.”