Barloworld's future at stake as Competition Tribunal hears acquisition details

The Competition Tribunal hearing concerning the acquisition of the longstanding South African company Barloworld by Newco has ignited discussions around empowerment for historically disadvantaged persons as well as the company’s impending delisting from the Johannesburg Stock Exchange (JSE).

As the details unfolded on Wednesday, tensions rose over the implications of this significant transaction.

Former executives in Barloworld are acquiring Barloworld through Entsha Proprietary Limited while Saudi Zahid Group is the other shareholder in Newco. With Newco intending to bump up its shareholding in the South African company, Barloworld will ultimately be delisted from the JSE.

The merging parties through their legal representative told the Competition Tribunal hearing on Wednesday that the delisting of Barloworld was a major condition for the implementation of an Employee Share-Ownership Program (ESOP).

After delisting, a women led consortium will also be empowered into the company.

“The merger parties’ position is quite clear that if there is no delisting, they're not in a position to implement an ESOP. That being said, we are confident and the likelihood is that there will be a delisting,” the merging parties told the Competition Tribunal hearing.

Newco is offering R123.10 per share for Barloworld. The tribunal also heard on Wednesday that Newco now has assurances of about 58% shareholders to raise its stake in the company and delist it.

Barloworld’s financial performance adds context to what is at stake. For the year ended September 2024, revenue declined by 7% to R42 billion, with operating profit from core activities falling 12.6% to R3.8bn and Ebitda declining 7% to R5bn. Gross debt, however, eased 29% to R7.9bn.

The delisting of Barloworld is important for Newco as without it, it will be “practically difficult for it to implement” transactions overpowering historically disadvantaged persons. To attain this, Newco is pursuing to bump up its stake to 90%.

“So that is why the HDP transactions are conditional on Newco effectively acquiring all of the Barloworld shares and Barloworld being delisted,” said the merging parties legal representative at the hearing.

Wiri Gumbie, principal analyst for mergers and acquisitions at the Competition Commission, told the hearing that he was “hopeful” that Newco will attain the 90% threshold to unlock total control of Barloworld and delist it.

However, some concerns emerged that the delisting of Barloworld may not be easy to attain given that some minority shareholders could be disinterested in giving up their interests in the company.

“It's sounding more and more that the chances of the delisting may certainly not happen. The chances of workers benefiting and the women led consortium benefiting is certainly hanging in the balance in this regard and unfortunately, it is a concern now regardless,” the Competition Tribunal heard.

Gumbi also revealed that the Public Investment Corporation (PIC) had indicated that it required the securing of black economic empowerment shareholder participation for it to support the transaction.

The merging parties had addressed and resolved this, and the PIC is now satisfied that this has been settled under the conditions set out. Newco had included the empowerment provisions for historically disadvantaged persons and the ESOP after discussions with the PIC.

Remaining shareholders that elect not to sell their shares then the requirement to do an ESOP will risk further dilution of their minority stakes.

“If there are minority shareholders that remain on the list and there needs to be, for example, an issuance of new shares or some other major transaction to implement those, there would presumably be some kind of shareholder approvals and and basically shareholder votes required and on such matters,” said the merging parties legal counsel.

“It may well be that if the transaction is implemented by way of an issuance of new shares, they may be affected because they would be effectively a dilution of their shares.” 

BUSINESS REPORT