The very unnecessary demise of Murray & Roberts

It was a company that defined South African engineering excellence for a century, mirroring the path of the country’s industrialisation. 

The landmarks it built are the country’s landmarks: the highest building in Africa, the 200m-tall Carlton Centre, built in 1975; the garish Sun City, built in 1981 for R25m; the 68,000-seater Cape Town Stadium, built for the 2010 World Cup. 

“We are Murray & Roberts, we are South Africa,” was its slogan, and for about 122 years, that was on point. As if to underscore the congruity, even over the ruinous decade of Jacob Zuma’s presidency, in which South Africa’s growth tumbled to less than 1% per year, Murray & Roberts fate took a turn too.

On Tuesday, the final rites were read. A circular was sent to long-suffering investors announcing, in the most ascetic tone imaginable, that with all its operating companies sold or bust, Murray & Roberts (M&R) was insolvent, and the board had “recommended [it] be voluntarily wound up”. The vote is set for June 19.

It was a slow implosion. M&R was placed in business rescue in November and its last surviving business – which built mines in Africa, Canada and the US – looks set to be sold to a company called Differential Capital for R1.3bn.

At that fateful meeting on November 22, the board said M&R had become “financially distressed”. In an affidavit, finance director Daniel Grobler said that even though it was “factually solvent and asset rich”, with assets exceeding liabilities by R1.2bn, “cash flow constraints” meant it couldn’t pay its debts.

But speak to any of the investors, or former managers, and they’ll say the collapse of M&R has not only left a gaping hole in South Africa’s industrial landscape, but it was also deeply unnecessary.

“Murray & Roberts had engineering skills that rivalled the best on the globe, and they blew it all away,” says Vincent Anthonyrajah, MD of Differential Capital.

There are few more visceral symbols of South Africa’s deindustrialisation – which has brought to the brink others including steel giant ArcelorMittal South Africa and sugar producer Tongaat Hulett – than M&R’s descent.

“Murray & Roberts was the flagship of South African industrial excellence, so this is a sad moment,” says Roy Andersen, who chaired the company for nine years until 2013. 

“The projects it completed were world class. Think of the Gautrain, which was the country’s first high-speed rail project, the Carlton Centre, and the Burj al Arab hotel, an iconic landmark of Dubai, which was completed in 1997.”

It propelled M&R to the apex, as the great South African engineering success story. 

Founded in 1902 as Murray & Stewart, the company began by building houses in the Cape Colony. But Douglas Murray, who inherited the business from his father John in 1928, was ambitious. He brought in Douglas Roberts, and won contracts all over the country, including its first big mandate: to build the Caledon Bridge in 1934 for £6,196.

Renamed Murray & Roberts, it listed on the JSE in 1951, and with a new global vision, it seemed unstoppable. By 2007, at the crest of World Cup optimism, it was South Africa’s largest construction firm and one of the JSE’s top 40, worth R35bn.

It never hit those heights again. As South Africa’s GDP ebbed, cobwebs grew over Zuma’s promises of a new infrastructure spending spree. Revelations of price-fixing over the World Cup stadiums didn’t help sentiment, as the five largest firms were slammed with R1.5bn in penalties, M&R forking out R300m.

A share price that had peaked in December 2007 at R108 a share ultimately shed 99% of its value, tumbling to R1.10 a share when suspended from trading in January. A business worth R35bn had destroyed value of all but R480m.

Shareholders, including the Government Employees Pension Fund, which held 22% at one point, Old Mutual and Allan Gray took a heavy beating.

The question is, what caused M&R’s demise? Was it the perpetual postponement of government’s infrastructure plans? Or was it triggered by shoddy decisions by the company itself that others would do well to avoid?

In recent weeks, Currency has interviewed many former managers, directors and analysts to get to the bottom of this, in part, so that other firms can learn from this cautionary tale. Every one of them, at some point, used the word, “sad”.

‘Poor risk management’

“The demise of Murray and Roberts was avoidable, and due to inadequate leadership at both executive and board level in the face of the extreme situations that arose,” says Brian Bruce, who served as CEO from 2000 to 2011, finally retiring after the World Cup.

Bruce exemplifies the term “institutional knowledge”, having first been hired at M&R in 1967, and working there for 44 years. Having kept his counsel for more than a decade, he finally broke his silence on the debacle in an interview with Currency. 

“A disaster of this sort has many switches,” he says.

“To manage your risk, you must understand where those switches are. You have to be entirely present and have full control over your cash flow. And when you end up in a contractual dispute with a client, you must be prepared to fight.”

This is a critical point, as M&R ended up in a decade-long dispute with the Gauteng government over extra costs it incurred building the Gautrain, including being given the land late. In 2016, Gauteng finally stumped up R1.3bn – far less than the initial estimate of R10bn in damages. 

Eskom, too, proved a horrid client, with delays and problems at Medupi, where M&R was working on various elements, including the boilers, costing the construction company plenty.

“At the heart of the company’s problem, it seems, was poor strategic risk management,” says Bruce.

When he retired in 2011, M&R was in 23 countries with 45,000 employees. “The benefit of that is that when one arm suffers, another can pick up the slack. But it shrank so much that it became narrowly focused and very vulnerable should there be problems or a slowdown in one area.”

Bruce says M&R had revelled in its leadership role in the industry, standing up to government when this was demanded of it. But it forfeited this voice when it sold the construction business, now named Concor, to an empowerment consortium called Southern Palace in 2016.

“The strategic skills on the board were clearly poor, relative to the construction sector dynamics,” he says. “Many of the independent directors on the boards of local construction firms do not come from that industry, so they have little intimate knowledge. Generally, such boards are led by disconnected corporate elites who take no responsibility when things go wrong,” he says.

He describes M&R’s demise as “bad for South African construction and engineering, and our place on the world stage”. 

But he adds that for all intents and purposes, the Concor business was always the heart of M&R – and that seems to be doing just fine on its own.

He has a point. It was that business which built those iconic buildings: the Carlton Centre, the South African Reserve Bank, the Cape Town World Cup stadium, and so much else.

“What is today Concor was always the true Murray & Roberts. So when they sold it, they should have given the name away too,” says Bruce.

Millard Arnold, the company’s chief legal counsel and executive director for many years until he retired in 2010, says you cannot isolate any one reason for the steady decline of the business over the past decade of its life.

“A whole lot of problems coalesced in a perfect storm: extra costs in the Gautrain project, accusations of price-fixing in the World Cup stadiums, and problems building the airport in the United Arab Emirates. And when you expect government spending to pick up, to fill that hole, it actually dries up completely.”

While Arnold rates Bruce’s skills highly, given that he strengthened the company from 2000 to 2011, he says: “I’m not sure even Brian would have been able to steer the company out of all that mess.”

But if Bruce’s argument is that any well-led construction firm has to expect contractual disputes, and plan for them, many of these issues appear to have been mishandled, which has muddied the waters in seeking culpability for the crash.

Down-under upside down

Henry Laas, M&R’s last chief executive, agrees that it’s a regrettable ending – but is adamant this wasn’t due to poor strategic decisions on his part.

“What I can say is that this did not happen because of any bad decisions we made. It’s easy for everyone to point fingers in hindsight, but we had to battle a series of bad circumstances at the wrong time,” he says.

In Laas’s view, the beginning of the end can be traced to the fate of Clough, the Australian mining business of which it had first bought 36% in 2004, before buying out the rest of the shareholders in 2013 for R4.4bn.

“Covid destroyed Clough. Until that point, it had been expanding quite aggressively, but the new projects it got had been secured on the basis that certain progress milestones had to be hit. And Covid meant it all ground to a halt,” he says.

Costs spiked, not helped by the Ukraine war. By December 2022, M&R’s total loss for the six months soared to a numbing R2.5bn. It was no surprise that in that month, Clough was placed under administration.

Cash was diverted to pay Clough’s bills, and while M&R had somehow managed to cut total debt from about R2bn to just R409m, Laas says the banks simply weren’t prepared to refinance that debt.

The final straw came in 2024, when De Beers put its plans to develop its Venetia mine in the Limpopo province on ice, with the diamond market in the doldrums. Laas says Venetia provided half the revenue of the South Africa mining business – so this was a massive and, as it turned out, existential knock

“But if you trace this to where it started to go wrong, it is Covid. Had it not been for Covid, Clough would not have ended up in the position it ended up in. And neither would Murray & Roberts have ended up where it was,” he says.

To critics, Clough represented all that had gone wrong at M&R over the previous decade. 

Differential’s Anthonyrajah says it is not one massive loss-making deal that typically crushes a company, but rather a series of incrementally poor decisions. 

“The discipline and risk management of many industrial companies in South Africa has been poor. These companies were given capital by shareholders, expecting a return, and they have allocated it badly,” he says.

Anthonyrajah says there is no better illustration than the decision in 2013 to buy out the other smaller shareholders in Clough and take full control. At the time, M&R had just raised R2bn from shareholders in a rights issue, which it used entirely to buy Clough (a purchase that cost R4.4bn).

The problem was, Clough’s main business at the time was building mines and operations for oil and gas companies. 

“Murray & Roberts bought out Clough just as the oil price hit a high of $140 a barrel. The management never seems to have considered whether it would still have been a good deal when the oil price normalised,” he says. 

“The answer is: Clough was expensive at $140 a barrel, let alone with an oil price at half that. It was a poor use of capital.”

Bruce agrees, saying that in his view, taking full control of Clough in 2013 was M&R’s single biggest strategic error in its last decade.

“I was very vocal in warning the board that Murray & Roberts should never take full control of Clough,” he says. “As a South African company in Australia, you don’t want to have 100% of a hard currency problem. Rather than an independent company with a strong executive and board, it became a subsidiary of M&R, and things went from bad to worse.” 

One former executive, speaking on condition of anonymity, says buying out Clough while ditching a “world-class” construction business, was a mistake. And Covid is just a convenient excuse. Instead M&R should have built “the business back to what it had always been: South Africa’s leading engineering and construction contractor”.

But Laas rejects the view that this was a poor use of capital.

At the time, he says, M&R had no real prospect in South Africa: the construction industry was on its knees, and Clough had been going from strength to strength. Ditching South African construction in favour of overseas oil and gas projects seemed the right strategy, he says.

“It’s the easiest thing to say, in hindsight, that it was the wrong decision. But who would have known that in 2014, the oil price would collapse to $28 a barrel? We weren’t the only one taken by surprise,” he says.

In any event, Laas says Clough then pivoted away from oil and gas projects, and its order book grew. “And then Covid happened. And without the income from Clough, we struggled to settle our debt,” he says. 

An oil price collapse, and a pandemic. Few companies get that unlucky within a decade. But then, some might say you make your own luck.

Spurning the white knight

If you’re looking for an incident that casts an unflattering spotlight on the role of M&R’s board, it is the lost opportunity to sell the company to a white knight shortly before the pandemic struck. 

In 2018, a German company called Aton emerged, offering R15 a share directly to shareholders to buy out M&R. 

Laas’s board was not amused. It fought back, accusing Aton of mounting an “opportunistic” bid which “materially undervalues” the company. The board, based on an independent valuation, said a “fair and reasonable” price for M&R was about R20-R22 a share.

Tempers flared, with Aton even complaining to South Africa’s takeover panel about M&R’s obstructive board.

Nonetheless, when Aton lifted the offer to R17 a share in June 2017, it seemed the game might be up. “I think this is it,” said communications executive Ed Jardim to Laas on the day the higher offer came through. “This is the best we’ll get.”

Laas evidently agreed. “Many M&R shareholders will accept the R17 a share. Though we believe the true value is between R20 and R22 a share, the share has not traded there for a long time,” he said at the time.

It seemed a done deal, and 43% of shareholders sold out to Aton. 

Then in a twist in July 2019, the Competition Commission blocked the deal, arguing somewhat farcically that a merger would “create a company that has such size and scale that it has the financial wherewithal to throttle competition”.

It was a poor ruling never expected to withstand scrutiny. But while Aton was largely expected to appeal this to the Competition Tribunal, and extend the “long stop date” of the deal, it never did. 

“This was the last hurdle, and we were stunned when, in September 2019, Aton said they were not going to extend the offer,” says Jardim today. “But for that decision, the fate of Murray and Roberts could have been very different.”

But don’t be misled into thinking the authorities alone killed the deal. In declining to extend the offer, Aton cited the “continued stance of the independent board of M&R to not co-operate with, or provide its recommendation for the offer”.

Bruce describes M&R’s rejection of Aton’s bid as “crazy”.

“I don’t know how the board could tell shareholders that it really [was] worth R22 per share, when the market was telling you something different. I just don’t think they applied their mind to this,” he says.

To Differential’s Anthonyrajah, the rejection of Aton’s bid revealed something far deeper, and more troubling. 

“At the heart of Murray & Roberts’ business over the past decade was a disdain for shareholders. This was very evident when you saw the clear disrespect shown to Aton, which had simply bought shares and made an offer,” he says.

When you treat a major shareholder who has provided funding to your business with such scant regard, Anthonyrajah says, it’s no wonder that you have trouble discerning how to spend capital in the best way to give them a return.

It counts as an epic miss. As one investor bemoaned when contacted by Currency: “There’s not a Murray & Roberts shareholder that wouldn’t give their arm and their leg for a fraction of what Aton offered now.”

Today, Laas rues that lost opportunity. “The board was not oppositional; their only duty was to advise shareholders, which they did. But the real reason why it never happened is that Aton walked away prematurely,” he says.

Had the German company decided to extend the deal, the story of M&R would, in all likelihood, have ended very differently.

Thwarted ambition

With hindsight, it is arresting to read the ambitions outlined in the 2007 annual report, bristling with hope, at a time when all Bruce’s management team could see was blue sky. 

“We expect that average revenues over the three years between 2009 and 2011 may quintuple to about R40bn,” it said. “The current fixed investment cycle is by far the largest in the country’s history as infrastructure is provided for an economy that now seeks to serve all South Africans.”

In the end, revenue got close, hitting R35bn by 2011. But the cost to do that was immense, with losses that year clocking up at R592m. The 2012 annual report lays bare the shifting tenor of expectations, as the clouds began to gather.

Laas, who had replaced Bruce by that stage, spoke of “extremely demanding conditions”, and the drought in government-funded building projects. Nonetheless, he said the company’s “recovery process has been largely and successfully concluded”.

“The storm is mostly behind us,” he said. 

As it turns out, the biggest hurricane lay ahead of it. 

Favourite