Barloworld, a JSE-listed industrial giant, finds itself at the centre of a governance storm as the Public Investment Corporation (PIC), its second-largest shareholder with a 21.97% stake, on Friday publicly opposed a proposed takeover. The PIC announced it voted against the offer of R123.10 per share, citing concerns over corporate governance.

“The PIC is concerned with corporate governance standards at Barloworld and the steps its board followed in considering the transaction in question,” the statement read, adding that it understands the strategic direction that OEM Caterpillar has taken to increasingly place the running of their dealerships into private hands. It also opposed the re-election of certain board members at the company’s annual general meeting the previous Friday.

PIC said in a statement that it does not, in the ordinary course of business, comment on specific transactions. However, given considerable media attention on the proposed transaction and the gravity of the issues outlined below, the PIC believes a public statement is justified.

Yet, the PIC - the government-owned asset manager that manages its social security funds with R2.7 trillion assets under management as of the end of March 2024 - acknowledged the offer’s value, stating, “The PIC believes the current offer for Barloworld still presents a premium to the company’s fair value, and at a premium to the pre-price offer,” aligning with independent valuer Rothschild’s range.

This latest twist follows a tumultuous week for the company, marked by a shareholder revolt and a faltering R23 billion buyout plan spearheaded by Barloworld CEO, Dominic Sewela. Sewela has been criticised for pushing for the takeover of the company by Saudi-based Zahid.

The board of Barloworld approved the bid by the Zahid consortium a few weeks ago but shareholder disagreements have dogged the transaction. Shareholders that were opposed to the buyout and de-listing of Barloworld from the JSE included the UK investment firm, Silchester International.Silchester was now likely to pursue the dismissal of the Barloworld board as well as Sewela as CEO.

Sewela is enlisted as a director of Newco, which was the acquiring company, with Zahid also having shares in the company. Newco had offered to acquire all of the Barloworld ordinary shares by way of a scheme of arrangement that got voted down on Wednesday at an extraordinary general meeting. Shareholders also rejected a motion to pay fees for independent board members.

On Wednesday following the extraordinary general meeting), Barloworld responded swiftly, announcing a standby offer on the same day. “The Standby Offer is now open for acceptance by Barloworld shareholders at R120.00 per share in cash, maintaining the same value as proposed in the scheme of arrangement,” the company stated.

Priced at a total of R23 billion, it offers an 87% premium to the 30-day VWAP as of April 12, 2024. The catch: it requires 90% acceptance from ordinary shareholders, excluding consortium-held shares, though Newco, the bidding entity, can waive this threshold.

Financially, Barloworld’s year ended September 2024 paints a mixed picture. Revenue fell 7% to R42 billion, driven by subdued trading in Southern Africa and Vostochnaya Technica.

Operating profit from core activities slid 12.6% to R3.8bn, while Ebitda also declined 7% to R5bn. Debt levels eased, with gross debt down 29% to R7.9bn.

Looking ahead, the standby offer shapes Barloworld’s prospects. Its longstop date for conditions precedent is September 11, 2025, extendable by three months if regulatory hurdles persist.

Meanwhile, the company on Wednesday denied that it hasn't been transparent to shareholders but is following takeover regulatory procecces, saying, “From the time the Consortium approached the company with a non-binding indicative offer, the composition of the Consortium and the nature of CEO Sewela’s involvement was fully disclosed to the Board and the resultant conflict of interest was declared.”

“The Group Chief Executive was immediately recused from Board discussions related to the proposed transaction. In line with the Boards’ statutory and fiduciary duties, the Board sought legal advice and implemented strict governance measures, based on global transaction precedent and best practice, to ensure a thorough and unbiased evaluation of the offer in the best interests of the company and its shareholders. The Independent Board has duly discharged its duties in this regard.”

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Barloworld's governance crisis: PIC rejects R23bn offer