Murray & Roberts (M&R) CEO Henry Laas says he will make every effort to convince its largest shareholder ATON – the German family-owned business, which owns 39% of the company and which has made a firm offer to acquire majority control of the South African engineering and construction group – of the commercial merits of its proposed acquisition of fellow JSE-listed company Aveng.
M&R and Aveng announced on Friday that a friendly approach had been made by M&R to acquire the entire issued share capital of Aveng, as well as to facilitate the early redemption of R2-billion-worth of Aveng convertible bonds. M&R intends raising bank debt to fund the early redemption of Aveng’s outstanding convertible bonds, which are due to mature in 2019.
In parallel, M&R proposes making an all-share offer to acquire the issued share capital of Aveng. The transaction value is currently estimated at R1-billion, assuming that Aveng raises at least R300-million in new capital as part of a recently announced rights offer, which M&R supports.
Aveng confirmed that it intended to proceed with its rights offer, but that, in light of the M&R transaction, it proposed raising up to R500-million rather than the R1.8-billion outlined to shareholders in April.
Should the acquisition succeed, the core businesses of Aveng – McConnell Dowell and Moolmans – would be integrated into M&R to enhance its infrastructure capacity in Australia and to add surface-mining capabilities to M&R’s existing underground-mining prowess in Africa and elsewhere.
M&R is supportive of Aveng’s proposal to dispose of its noncore businesses, including Grinaker-LTA, as well as its steel and manufacturing enterprises and believes the disposals will help lower debt in the combined entity.
In an interview with Engineering News Online, Laas insisted that the discussions on the Aveng transaction predated ATON’s offer to M&R shareholders and that it was, thus, not being proposed in an effort to frustrate that offer.
On April 20 M&R’s board advised shareholders in a circular to reject ATON’s R15-a-share offer, which valued the company at R6.7-billion, describing the offer as “opportunistic”.
'NO BASIS' TO SUPPORT ACQUISITION
However ATON responded to the proposed acquisition by asserting that there was "no basis" for it to support M&R’s proposed acquisition of Aveng.
"The announcement reflects an underdeveloped and rushed outline of a potential transaction with a speculative rationale. In M&R’s own words, 'there is nothing for Murray & Roberts shareholders to consider yet'.
"Its sole intent appears to be to frustrate ATON’s compelling proposition to M&R shareholders. ATON remains committed to the implementation of its offer, which we believe will be beneficial to M&R and its shareholders. We will thus file with the Competition Commission ahead of the 24 May 2018 deadline," ATON said in a statement.
To “cleanse” the deal of possible taint of being a “frustration action”, M&R will approach shareholders on June 19 for its approval in terms of Section 126 of the Companies Act dealing with frustrating actions.
A simple majority can pass the resolution, but Laas is keen to receive ATON’s support for the transaction, acknowledging ATON’s rejection would pose a serious risk to the acquisition proceeding.
Laas tells Engineering News Online that a letter has been sent to ATON outlining the rationale for the transaction and the potential benefits for M&R shareholders and that he stands ready to travel to Munich, Germany, to outline the commercial advantages of the acquisition.
He reports that Aveng executive chairperson Eric Diack has also expressed a willingness to engage with ATON on the proposed transaction.
In an interview with Engineering News Online, Aveng CFO Adrian Macartney stressed that, while Aveng had no relationship with ATON, it had “no objection” to participating in meetings to outline the benefits of the transaction and the creation of a larger engineering and construction group with a focus on oil and gas, mining, energy and water.
“We are not going to leave any stone unturned to try and convince ATON of the merits of this transaction and, I believe, once we show it to them they will agree with it straight away. Or let me put it this way, from a commercial point of view this transaction makes a lot of sense; whether it aligns with their strategic intent is a different story,” Laas added.
Engineering News Online sent written questions to ATON in an effort to solicit its reaction to the proposed transaction, but had not received a response at the time of publication.
M&R argued that, besides adding surface mining and infrastructure delivery capacity, the combination would result in the creation of a large multinational engineering and construction business, with Laas arguing that M&R market capitalisation could rise beyond R10-billion, elevating it from a “small-cap entity to a mid-cap company”.
Laas added that the acquisition would also enhance the group’s credit profile and assist Aveng to shore up liquidity in the near term. In addition, it could assist with the “systematic sale”, which could realise debt-reducing proceeds of around R1.5-billion.
“I firmly believe this transaction is in the best interest not only of our shareholders, but also of the Aveng shareholders.”
Macartney said the Aveng board had concluded that the M&R transaction would be more beneficial to shareholders and bondholders than the alternatives currently under consideration by the debt-laden group. Bondholders would receive 100c in the rand in cash, while shareholders would have the opportunity to participate in the upside associated with an upscaled entity with a stronger balance sheet.
However, the fairness of the offer would still be independently assessed at the point when the conditions had been met, to enable M&R to make a firm acquisition offer.
With the condition of all the approvals being secured Macartney anticipated that shareholders from both companies would be in a position to vote on the transaction during August. The conclusion of the deal would then depend on regulatory approvals, including those required by competition authorities in the various jurisdictions in which the combined company would operate.
For his part, Laas was confident the proposed transaction would not face significant opposition from the competition authorities in either South Africa or Australia, as the activities of Moolmans and McConnell Dowell do not overlap materially with those of M&R Cementation and Clough respectively.