Tribunal approves R23bn Barloworld acquisition by Newco, sets empowerment conditions

Tawanda Karombo

The Competition Tribunal has granted approval for the acquisition of industrial giant Barloworld by Newco, contingent upon fulfilling specific public interest and empowerment criteria aimed at benefiting historically-disadvantaged persons (HDPs) in South Africa.

This heralds a significant shift not only for Barloworld but for its employees, as the merger promises structural changes rooted in empowerment and employee participation.

Former executives in Barloworld are acquiring the group 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 last week 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 Competition Tribunal on Friday announced that it has approved the proposed merger, stressing that conditions related to employment, empowerment and ESOP be met.

“For a period of two years after the merger’s implementation, the merged entity may not retrench any of its employees in South Africa as a result of the merger. In addition, Barloworld employees’ existing terms and conditions of employment will not be changed as a result of the merger,” said the Tribunal on Friday.

The merged entity also has to implement two phases of empowerment of historically disadvantaged persons that will give the groups, together with participating employees, a collective 13.5% shareholding in Barloworld.

 The second phase of the empowerment program involves the acquisition of a further collective 10% of Barloworld’s issued shares by HDPs and participating employees.

This will be on the basis of a 5% stake for employees through an ESOP and a 5% stake for a women-led consortium, to be selected and approved by the merged entity. 

“Participating employees” are described as permanent employees of Barloworld or its subsidiaries and associate companies, the majority of whom are HDPs, who have been employed for at least six months. The second phase of the empowerment statutes has to be implemented within 24 months of Barloworld’s delisting from the JSE and A2X securities exchanges, following the merger’s implementation,” said the Competition Tribunal. 

“Before implementing Phase 2, the merged entity must provide the Competition Commission with details of the proposed Phase 2 transactions in writing, at least 100 days before the 24-month period expires. These details must include the identity of the women-led HDP consortium/shareholders, including evidence that the prospective HDP shareholders are appropriately classified as HDPs.”

Newco is offering R123.10 per share for Barloworld. The Tribunal also heard last week that Newco now had assurances of about 58% shareholders to raise its stake in the company and delist it.

For the year ended September 2024, Barloworld revenue dropped 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 that empower HDPs. To attain this, Newco is aiming to bump up its stake to 90%.

However, some concerns emerged at the hearing 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.

The Public Investment Corporation had indicated that it required the securing of black economic empowerment shareholder participation for it to support the transaction.

Remaining shareholders who elect not to sell their shares if there is a requirement to do an ESOP risk further dilution of their minority stakes.

BUSINESS REPORT