Murray & Roberts opposes Aton buyout offer

Henry Laas, CEO of Murray & Roberts, on why he thinks the offer by Aton undervalues the business.

WARREN THOMPSON: Further to the developments around what seems to be panning out as a hostile takeover, Murray & Roberts is currently trading up 1% to R14.43/share. I spoke to Henry Laas, the CEO, to get his reasons as to why he thinks the offer by Aton undervalues the business. This is what he had to say.

HENRY LAAS:  As you know, as soon as they’ve reached the 35%, the mandatory offer then kicks in, and that would happen should they acquire the shareholding or half of Allan Gray’s shareholding in Murray & Roberts.

Our understanding is that there is an agreement between Allan Gray and Aton that, should the offer open, Allan Gray would sell those shares, which they need if the mandatory offer is in play. Our understanding is that the offer circular will be posted tomorrow or even today, but that the offer would open tomorrow, on Friday. If that’s going to happen – we are pretty sure it will happen, but we will have to wait and see whether it actually does happen – the offer would be at R15/share. That is what was indicated to us by Aton.

WARREN THOMPSON:  So is that R15/share that they’ve offered Allan Gray, what they will offer the rest of shareholders in the company?

HENRY LAAS:  That’s correct.

WARREN THOMPSON:  Okay. So you anticipate that they will publish that circular either today or tomorrow and then obviously shareholders will have the choice as to whether or not they would like to accept the offer. You, as the management of Murray & Roberts, are currently opposed to the transaction at the moment. Just give us your reasons for that.

HENRY LAAS:  Warren, just to get it technically correct, in a scenario like this the board of the company needs to appoint an independent board that needs to advise shareholders. So the independent board yesterday put out a view that, in their view, supported by work that was done by an independent expert, which is BDO in this instance, the fair range in the view of the independent board is between R20 and R22/share. So we think that the timing of this offer by Aton is extremely opportunistic and it materially undervalues our share. You will recall that as late as November last year we were trading at about R17/share, and at the time that the offer was made we were trading below R10/share. For that reason we say it’s extremely opportunistic.

I think where there is some confusion in the market around the valuation of Murray & Roberts is Murray & Roberts is no longer a traditional construction company, and we have deliberately transformed over the past few years to become a multinational engineering and services group. Unfortunately for our shareholders the company’s share price does not yet reflect this embedded value following the transformation, and the share is just anchored to the valuations of its legacy peer group in the heavy construction segment of the JSE. I think that’s where the issue lies. It is the valuation which is applied by the market to our share, which is then, as I said, anchored to the legacy peer group in the heavy construction segment of the JSE, because the value which the independent board has put forward, a range of R20 to R22/share, from a management point of view is fully supportive of that value range.

WARREN THOMPSON:  So your gripe, as far as I understand it, is really around the price at the moment. Are there any aspects of what Aton may intend to do with Murray & Roberts that you are opposed to or do not agree with?

HENRY LAAS:  Well, they haven’t shared their strategy with us, and for us at this stage it is really more about the price. As you know, if there is an offer on the table, we must give the shareholders the opportunity to decide how they would like to respond to that offer. From a management point of view, we do know that Aton owns a mining company called Abu Marawat which is very similar to our underground mining platform, and the intention I believe would probably be to integrate that with Abu Marawat.

WARREN THOMPSON:  So, if I’ve heard you correctly, you would like to see Aton up the offer to, at the very least, somewhere in that range hat BDO has stipulated is fair value.

HENRY LAAS:  This range of R20 to R22/share was not the BDO range. The BDO range was slightly different. But that is the range put forward by the independent board, and I can say that value range is supported by the BDO report.

WARREN THOMPSON:  Can you give us a little more colour then? Obviously investors are sitting here now, seeing the share price which is up already 1.2% to R14.44. To what do you attribute the difference between what BDO considered a fair range and why the market only values your business at R14/share at the moment?

HENRY LAAS:  I think the biggest reason for that is the fact that the market still views Murray & Roberts as a heavy construction company, which we no longer are. I think if you look at the group’s most recent financial performance alone, that separates the profit from those legacy peers. I think that is what the issue is.

WARREN THOMPSON:  So we are going to wait for the circular. Are you going to be making any other presentation to the investment community supporting the view, certainly of BDO, that your business has been mispriced and that the discount for investors sitting here should close quickly if the Aton offer were to fall away?

HENRY LAAS:  The process going forward from here is there will be the offer circular, which as I said we do expect to come out today, and then there is a response circular which needs to be prepared by the independent board in response to this offer. The offer will remain open for 30 business days, which will take us deeply into May. But before then, certainly before May 7, the independent board will respond with a response circular. There will be a lot of detail in that response circular, specifically referring to the value range of R20 to R22/share.

WARREN THOMPSON:  Is that BDO report public yet, Henry?

HENRY LAAS:  No, it’s not a public report. It’s a report which was prepared specifically for use and consideration by the independent board. But what BDO would do is they would write a letter that will be incorporated in the response circular that will come out in due course.

WARREN THOMPSON:  Okay. So certainly what you are saying is shareholders will not be able to view the report compiled by BDO, but you will provide information along a similar parallel to support why you think the offer is undervalued?

HENRY LAAS:  As I said, from BDO, BDO themselves will include a section in the response circular which will be their letter supporting their value range. I don’t think it will be the complete report. The complete report has a lot of detail and information which I don’t think is all relevant as to how the valuation was determined in all the finest detail. But all the concluding comments would certainly be incorporated in their letter.

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