Barloworld Limited: Leading Brands

Press releases

Newco Announces Firm Intention to Acquire Barloworld

• Newco is proposing a transaction that represents a total value unlock of ZAR 123.10 per share, comprising the cash scheme consideration of ZAR 120.00 per share which will not be reduced by the ZAR 3.10 dividend already declared by Barloworld on 22 November 2024, which represents a significant premium of 87% to Barloworld’s 30-day VWAP as at 12 April 2024 (the last trading day prior to the first transaction-related cautionary announcement by Barloworld)
• This offer values Barloworld at ZAR 23 billion
• If successful, the implementation of the Proposed Transaction brings together long-term committed investors for Barloworld and creates a majority black-owned, privately held South African company
• Following implementation of the Proposed Transaction, Barloworld will retain its name and remain headquartered in South Africa
• The Proposed Transaction demonstrates investor confidence in South Africa
• The Independent Expert has on a preliminary basis concluded that the offer is fair and reasonable
• The Independent Board intends to recommend that shareholders vote in favour of the scheme of arrangement based on the preliminary Independent Expert opinion
• Caterpillar is supportive of the Proposed Transaction

Proposed Transaction

On 15 November 2024, Barloworld renewed its cautionary announcement, where it advised shareholders that it had entered into negotiations with a consortium of investors (the "Consortium") comprising of Entsha Proprietary Limited ("Entsha") and Gulf Falcon Holding Limited ("Falcon Holding"), a wholly-owned subsidiary of Zahid Group, regarding a proposed transaction which could result in the Consortium, acting through a newly established company ("Newco"), making an offer to acquire all of the issued ordinary shares in Barloworld (other than treasury shares, shares held by members of the Consortium and the Barloworld Empowerment Foundation) (the "Proposed Transaction").

In a joint announcement, Barloworld and Newco today announced Newco’s firm intention to acquire the entire issued share capital in Barloworld, other than those excluded shares as referenced above, through a scheme of arrangement for a cash scheme consideration of ZAR 120.00 per share, which will not be reduced for the ZAR 3.10 dividend per share that was declared by the Company on 22 November 2024 (i.e. representing a total value unlock of ZAR 123.10 per share). The offer values the entire issued share capital of the Company at ZAR 23.3 billion.

The total value unlock per share represents a significant premium of 87% to Barloworld’s 30-day VWAP prior to the first transaction-related cautionary announcement on 15 April 2024.

Newco recognises the goodwill associated with Barloworld’s name, its 122-year history in the South African market and the strength of its brand within the markets where it operates. As such, the Proposed Transaction will not affect the continuity of the name and brand, and Barloworld will continue to be a South African headquartered business which will continue to operate business as usual with no changes to working conditions or any job losses foreseen as a result of the Proposed Transaction.

Through Entsha’s majority ownership in Newco as a 100% black-owned South African entity, the proposed transaction will enhance Barloworld’s direct black-ownership whilst maintaining all other aspects of Barloworld’s BEE status, in line with the South Africa government’s objectives to build and transform the South African economy.

Newco will retain the R2.9 billion Khula Sizwe broad based vehicle and maintain its commercial arrangements with Barloworld, ensuring the 29,000 Khula Sizwe majority black beneficiaries (comprising current and former Barloworld employees as well as public shareholders) continue to benefit post the Proposed Transaction.

In addition, the Barloworld Foundation, which complies with the Broad-Based Ownership Scheme requirements of the BEE Act, with a minimum of 60% of its economics flowing to black women, owns 3.5% of Barloworld valued at R800 million at the offer price and will continue as shareholder of Barloworld post the Proposed Transaction. The Foundation will continue with their stated Economic Development and Corporate Social Investment initiatives on behalf of Barloworld.

Furthermore, Newco has committed to implementing a management ownership transaction following the implementation of the Proposed Transaction, further broadening participation in Barloworld.

Governance Protocols

The Consortium initially approached Barloworld in late February 2024, with an indicative non-binding offer. In line with the Takeover Regulations, Barloworld immediately established an Independent Board and appointed advisers with whom it is working to ensure that the Proposed Transaction is appropriately considered.

The Independent Board implemented governance protocols to ensure adequate safeguards were in place to address potential conflicts of interest and governance concerns around the CEO’s involvement in the Proposed Transaction.

A clear protocol was agreed between the CEO and the Independent Board which governs how he must conduct himself during this period, providing a clear delineation of the day-to-day operations of the Company and the proposed transaction.

The CEO was recused by the Board from all Barloworld related issues on the Proposed Transaction and a Steering Committee consisting of select non-conflicted executives of the Company and the appointed advisers (and which does not include the CEO) was constituted.

These governance protocols have served to ensure that the business continues to be run efficiently and in the best interests of all shareholders and the Company, whilst mitigating any potential conflicts between the Proposed Transaction and the day-to-day running of the Company’s operations.

Furthermore, in line with the Companies Act and Takeover Regulations, the Independent Board appointed reputed global investment bank, Rothschild & Co as the Independent Expert to assess the offer and provide an opinion as it relates to the fairness and reasonableness of the terms and conditions of the Proposed Transaction.

The Independent Expert has, on a preliminary basis, concluded that the terms and conditions of the proposed transaction are fair and reasonable to the Company’s shareholders.

Dr Lulu Gwagwa, Chairperson of the Independent Board, said:

“After many months of facilitating a rigorous and clear process, the Independent Board, having assessed the preliminary view of the Independent Expert, supported by our appointed advisors, intends to recommend that shareholders vote in favour of the scheme of arrangement.”

About Newco

Entsha’s 51% ownership of Newco will allow Newco to continue to drive Barloworld’s future growth and support management’s strategic objectives for the business. As a strategic partner in Newco, Zahid Group, an existing long-term financial investor in Barloworld, with c.18.9% shareholding in the company, will leverage its extensive sector expertise to bring value to Barloworld and support executive management who will continue to manage and operate the business as usual.

Zahid Group is a leading family-owned Saudi Arabian business. Founded in the 1940s by the late Sheikh Yousuf Mahmoud Zahid, Zahid Group began its journey representing American car manufacturers and has been a primary CAT dealer since 1950. Zahid Group owns 49% of Newco. As a long-term authorised CAT dealer in the Kingdom of Saudi Arabia, boasting a 75-year track record, Zahid Group brings extensive sector experience which it will leverage to support management to grow the business.

Sydney Mhlarhi, spokesperson for Newco, said:

“Newco’s offer is a demonstration of Newco’s confidence in the long-term investment thesis of Barloworld, including its people, management, brand, and the markets in which it operates, as well as our commitment to South Africa as an attractive international investment destination.

The transaction is an overwhelmingly positive vote of confidence in South Africa and will see Barloworld become a majority black owned, privately held, South African industrial company, maintaining the continuity of both Barloworld’s management, staff and operations in line with the Group’s existing diversified strategy to drive growth and value creation in the future.

The shareholders of Newco take a long-term a view on its investments and are not motivated by short-term price movements but are attracted by the fundamental value and long-term sustainable, profitable growth we believe we can bring to Barloworld. As a result, Newco has proposed a compelling offer which it believes is fair and reasonable and worthy of consideration by shareholders as it provides them with the opportunity to accelerate the realisation of value for their shares and provides certainty of a premium to the company’s share price, in cash, for a cyclical business in what is an uncertain market.”

In addition, Caterpillar, a key supplier and important revenue driver for Barloworld, supports the Proposed Transaction.

The Proposed Transaction remains subject to Barloworld shareholder approval at a general meeting, the date of which will be confirmed in the circular to shareholders, as well as regulatory approval from the relevant competition authorities.

Should the Proposed Transaction be successful, Barloworld will be delisted from the JSE and A2X.

The Independent Board of Barloworld (to the extent that the information relates to Barloworld), individually and collectively, accepts responsibility for the information contained in this announcement and certifies, to the best of its knowledge and belief, that the information contained in this announcement is true and that this announcement does not omit anything that is likely to affect the importance of the information included.