Picture: 123RF/Sergei Dmitrienko
Picture: 123RF/Sergei Dmitrienko

"The M&R [Murray & Roberts] board is playing normal chess while the Germans are playing 3D chess."

It’s hard to disagree with twitter wag @JSE_School_Bus as the results of construction group Aveng’s last-gasp rights offer come in. They reveal that German group Aton — which is trying to buy out M&R and has been highly critical of M&R’s tilt at Aveng — itself now owns 25.4% of Aveng.

A chess gambit known as "the hippopotamus" comes to mind: behaving like a hippo lying in wait, Black "sets up a flexible defence that can adapt to whatever White tries", in the words of website chess.com.

How else could one explain Aton’s desire to be invested in an asset that it recently described as "highly detrimental" to M&R, bringing as it did "higher operating risk, significant debt and negative cash flow"?

As for M&R, the company’s head of investor relations, Ed Jardim, says: "We understand that the 25% essentially provides negative control in Aveng to Aton, as [it is] able to block all special resolutions. What remains unclear is Aton’s 180° investment view after being publicly vocal and highly critical for weeks of M&R’s potential acquisition of Aveng."

For one thing, that 25% stake did not cost much.

Aveng was forced to issue five billion new shares to raise just under R500m, implying a cost of just R133m to Aton — a snip at €8.5m for the German firm, which made €223.5m in earnings before interest, tax, depreciation and amortisation in the 2017 financial year.

While the cash call was hugely discounted, 98.6% of the rights were taken up and Aveng says its liquidity and financial position were "significantly" improved.

But as share register Strate tallies who ended up with what, analysts are trying to tease out Aton’s intent.

One asset manager, who asked not to be named, says: "Unfortunately we are in the dark, like everyone else. This move was really surprising — I don’t think anyone saw it coming."

Aton, he says, could now be in favour of an Aveng-M&R combination so it could flip its Aveng shares at a profit to M&R, in which it holds a 44% stake. "It could also be the opposite: hoping to block the merger by voting against the resolution at the Aveng shareholder meeting."

As a chess game, it’s been anything but dull, though it began with Aton’s fairly vanilla opening salvo: an offer back in March to buy M&R for R15 a share.

M&R then sprang its surprise buyout bid for Aveng, which it argued had "strategic and financial merits for the shareholders of both companies, including Aton".

Initially, M&R and Aton agreed to meet to discuss the plan. Then matters turned hostile: Aton’s voluntary offer became mandatory, it increased its price to R17 a share and it came out strongly against an Aveng-M&R tie-up — all the while building up a stake in M&R on the open market.

Shortly afterwards, M&R released an independent assessment that found Aton’s offer was "unfair but reasonable", with fair value for control set at between R20 and R22 a share.

M&R, having asked Aton to limit its voting rights to the shareholding it had built up before it launched its takeover bid in March, went to the competition authorities to block Aton from voting its shares.

Aton had not responded to repeated requests for comment by the time of going to print.

This game isn’t over yet.