Barloworld’s CompCom boost  

Judging by the barely discernible move in the Barloworld share price, investors didn’t seem particularly impressed by the Competition Commission’s rapid approval of the proposed acquisition of control by Newco, a consortium led by Saudi Arabia-based Zahid.  

So unimpressed, in fact, that the day after the commission released the media statement announcing it had recommended that the Competition Tribunal approve the transaction, the share edged down to R107.50 from R109.

The commission reckons the proposed transaction “is unlikely to substantially lessen or prevent competition in any market”. This means the only area of potential concern was the Competition Act’s big black “public interest” hole.  

And thanks largely to the earlier intervention by the Public Investment Corporation (PIC), that’s sorted.  

Well, almost.  

“To address public interest concerns,” said the commission, “the merger parties have agreed to a phased transaction to increase ownership by historically disadvantaged persons (HDPs) and employees provided certain transaction obligations are met”. 

That PIC-driven transaction, which was announced at the end of April, involved Newco allocating 13.5% of Barloworld to a broad-based BEE transaction “after the delisting of Barloworld from the JSE and A2X”. It was on this basis that the PIC, which holds 21.93% of the group, undertook to back the deal. 

But here’s the thing; in this remarkably complicated transaction nothing is certain, and a delisting least of all. 

It might become more of a certainty on or before June 30. That, according to Barloworld, is when Newco has assessed “the level of acceptances received” and will decide “whether or not it wishes to waive the acceptance condition and proceed with the standby offer”. 

That “acceptance condition” requires the R120-a-share offer to be accepted by 90% of the shareholders. If 90% of the shareholders accept the offer, Newco can delist the group. 

However things are less clear on the delisting front if 90% don’t accept the offer. Recall that UK-based Silchester International Investors, which holds 17.7%, has said it will not accept the R120-a-share offer. So, it seems inevitable that Newco will not get sufficient shares to delist.  

If it doesn’t delist, then the PIC-backed B-BBEE deal won’t happen and if that doesn’t happen, then what happens about the Competition Commission’s recommended approval? 

A Barloworld spokesperson assured Currency: “The Competition Commission’s recommendation stands regardless of whether Barloworld remains listed or not.” Maybe. 

Kinks to be ironed out

One leading competition lawyer told Currency that the precise terms of the commission’s approval, if not already formulated, would be completed before the case was considered by the Competition Tribunal. 

Which means that though the commission’s prompt approval of the transaction represents a very positive development, there could still be a few kinks to be ironed out on this front.  

Still, it doesn’t explain the lack of investor enthusiasm for the announcement. The fact is, though a crucial requirement, approval from the competition authorities is, according to Richard Cheesman of Urquhart Partners, not as determinative as two other factors. Most important of these is Newco’s pending decision on whether to waive the acceptance condition. 

And then, says Cheesman, there’s the investigation into potential export control violations by Barloworld’s Russian subsidiary. The investigation, which is independent, was commissioned by Barloworld; it has been extended to September.  

Though not quite a done deal, Cheesman tells Currency that the R108 share price indicates the market believes there’s a 70% chance of it being finalised. And for the risk-takers out there there’s attractive opportunity. “If the deal closes in September anyone who buys at the current level will get a 40% annualised return,” he says. 

_{Top image: Zoonar / Getty Images Plus; Currency collage.}