Digging up the Barloworld holdouts

With just 9-and-a-half trading days to go before the Newco offer for Barloworld closes, the Saudi-led consortium is tantalizingly close to the all-important 90% level of acceptances.  

Close, but not quite there yet. 

The 90% target is critical. It’s the level at which Newco can squeeze out the remaining 10% of shareholders and delist the company. If it doesn’t, it will be stuck with the expense and inconvenience of remaining listed for at least an additional 12 months, after which it can make another offer to the ‘holdouts’. 

The last acceptances update, issued on Thursday, revealed that Newco’s interest in Barloworld was 90.6%. But that figure includes 23.3% of the group’s equity – equivalent to 44m shares – owned by “inter-related persons or persons acting in concert” at the time the offer was announced and has to be deducted when calculating the 90% acceptance.  

Put differently, in order to declare success, Newco has to purchase 130.86m Barloworld shares. 

On the basis of last Thursday’s announcement, Newco has 127.6m shares, or 67.3% of the group. This means it has to find another 3.26m Barloworld shares before it can declare the deal done and commence the delisting process. That’s 3.26m of the 17.8m Barloworld shares that have so far not accepted the offer. 

Not an easy target

It sounds an easy enough target – except that the volume of Barloworld shares trading on the market has slumped to around 100 000 a day. Hardly surprising given that everyone who wanted to sell has probably sold by now. 

There could be a few investors who’ve somehow not heard of Newco’s bid for Barloworld and cannot be traced by brokers. Or there may be shareholders who are unaware they’re invested in Barloworld at all. 

Of course, it could be that at least some of the owners of the 17.8-million shares are hoping just enough of their co-shareholders will hold out to ensure Barloworld remains listed – and extract a higher offer in 12 months’ time. 

There may even be some who are happy enough to be invested in an unlisted entity. In the context of those shareholders, Newco might not have been too unhappy with Friday’s news that Moody’s Investors Services has just placed Barloworld’s ratings on review for downgrade. That’s just the sort of news to nudge some holdouts into acceptance mode. 

It seems Moody’s is concerned that Barloworld’s credit metrics, financial policies and wider governance standards could “materially weaken” when it is privately owned. The ratings agency reckons there’s a good chance Newco will finance the acquisition with debt, which will ultimately require Barloworld to hike its dividend payouts. 

Mind you, higher dividend payouts would suit some of the ‘holdouts’. 

This last-minute anxiety would of course have been avoided if Newco’s first choice of takeover strategy – the scheme of arrangement – had succeeded. A scheme of arrangement only needs backing from 75% of ‘independent’ shareholders as opposed to the 90% needed for a squeeze out. 

Back in February, the offer was cluttered and undermined by a litany of conditions. Led by the PIC and UK-based Silchester International, investors voted overwhelmingly to reject the R120/share offer. Newco had little option but to default to the standby offer. The alternative was to walk away. 

The PIC was brought around by the promise of BBBEE involvement and with some of the conditions lifted, shareholders warmed to the offer. Even Silchester who had stated the shares were worth R130/each ultimately accepted the R120. 

Of course, it could just be that the holdouts like to leave things to the last minute. We should know for sure by November 7. 

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