SYDNEY MHLARHI: Barloworld acquisition offers value for shareholders

In the article published by Tiisetso Motsoeneng titled “Sewela’s corporate governance quagmire in R23bn Barloworld buyout” (Business Day, December 19), it was evident that there might be concerns surrounding the governance structures within the proposed Barloworld transaction and there are a number of misconceptions and misunderstandings which need to be addressed.

Management-led buyouts of public companies can be complex and are unusual in the SA context. However, some perspective is needed as they are a normal part of the markets around the world and have become more common in recent years, adding value for all stakeholders.

The key to management-led buyouts is the governance of the transaction processes to address any perception of conflict of interest. We need to look at that in more detail, and these are the facts of the case:

In this instance, when initially approached by the Consortium the Barloworld Board immediately established an independent board to manage any risk of conflict of interest, in line with the Companies Act and takeover regulations. A clear protocol was agreed on how CEO Dominic Sewela must conduct himself during this period, including maintaining a clear delineation of the day-to-day operations of the company and the proposed transaction.

From the time of the initial approach by the Consortium, Sewela was, and continues to be, recused from all Barloworld-related issues on the proposed transaction. A steering committee consisting of select executives of the company and its external advisers (and which does not include the CEO) was constituted. This committee was tasked with assisting the independent board to assess the proposed transaction.

Second, Barloworld’s performance over recent years is demonstrable of a management team that has been executing on its strategy for the benefit of its stakeholders. Since 2017, Barloworld and its stakeholders have benefited from management’s relentless execution of the company’s “fix, optimise and grow” strategy to create enduring economic and social value while remaining committed to prudent resource allocation.

Notwithstanding Covid-19, macroeconomic and geopolitical headwinds which have negatively affected infrastructure investments and adjacent sectors, management’s track record of successfully navigating these unprecedented challenges and maintaining efficient operations has directly contributed to the consortium’s ability to present a compelling offer, reflecting the company’s strong performance under the current leadership.

Caterpillar, the main revenue driver for Barloworld, has expressed its support for the proposed transaction.

This transaction is an overwhelmingly positive vote of confidence in SA, with the current CEO partnering with a strategically important investor. The transaction will further enhance Barloworld’s direct black ownership and maintain all other aspects of Barloworld’s BEE status, in line with the SA government’s objectives to build and transform the SA economy. This includes a commitment to retaining a R3.8bn broad-based component in which Barloworld’s commercial arrangements with Khula Sizwe will continue, as well as maintaining the structure, mission and activities of the Foundation, which will remain a Barloworld shareholder.

Finally, the Consortium takes a long-term view on this investment and is not motivated by short-term price movements but is attracted by the fundamental value and long-term sustainable growth it believes it can bring to Barloworld, proposing an offer that fully reflects Barloworld’s long-term value, underpinned by the Consortium’s optimistic sector views, despite ongoing challenges.

The offer, which represents a total value unlock at R123.10 a share and constitutes a premium of 87% to Barloworld’s 30-day VWAP as of April 12 2024, affords shareholders the opportunity to accelerate the realisation of fair value for their shares while providing certainty of value in cash and certainty on timing for a cyclical business in an uncertain market.

Mhlarhi is the spokesperson for the Consortium comprising Entsha Proprietary Limited and Gulf Falcon Holding Limited, a wholly-owned subsidiary of Zahid Group, which has offered to acquire all of the issued ordinary shares in Barloworld.