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Battle at Bell

Price-sensitive information is being withheld, making the possible delisting of Bell Equipment look like a predatory move.
If IA Bell implements the management changes it wants, it will capture the full value of the shares alluded to by Gary Bell last July; equivalent to around R2bn. Image: Moneyweb

Bell Equipment’s share price has been drifting aimlessly since last September when the company rather dramatically announced the unwinding of a 21-year old agreement in a move that would see full control of Bell Equipment revert back to the family-owned company IA Bell.

The prospect of the repurchase of John Deere’s 31% stake triggering a mandatory offer was expected to nudge the stock towards its net asset value (NAV) per share of R38, which is multiples of the R5 at which it had been trading ahead of the announcement.

But the share price hasn’t even broken through the R8 level.

The share’s sluggish response reflects the lack of information being provided by the company as well as investor concerns that IA Bell, which currently holds 38.7% of Bell Equipment, will try and avoid making a mandatory offer.

Even worse is the fear that once it has acquired Deere’s stake, IA Bell might move to delist Bell Equipment on the basis of the current weak share price.

Read: ‘Goodbye Deere’ (Sep 8, 2020)

Shareholders in the dark

Weeks after being told the agreement had been concluded, shareholders are still in the dark about the future of their investment, with chair Gary Bell saying the company has not been notified of any further developments since the November Sens statement.

A peculiar response given is that Gary Bell occupies one of three director seats at IA Bell and owns a 25% stake in IA Bell.

In the November Sens statement Bell Equipment said: “The board of the company has been informed that a formal binding agreement for the acquisition by IA Bell of John Deere’s shareholding in the company has now been concluded subject to certain conditions precedent.”

No details were given about the ‘conditions precedent’ but it’s reasonable to assume they involved getting clearance from the Takeover Regulation Panel as well as the competition authorities.

That was the last shareholders heard about plans to unwind the 21-year agreement.

However, given that there has been no subsequent Sens announcement about IA Bell increasing its shareholding in Bell Equipment, and that the share register reflects no such major change in ownership, it seems the deal has not yet been finalised.

It is possible the delay was affected by the recent and unexpected death of one of IA Bell’s directors.

In search of answers

When asked for clarity, Gary Bell told Moneyweb that the November 6 Sens announcement explains the Deere/IA Bell transaction, adding: “When the board is advised of any further developments, it will notify the market via Sens.”

But not all shareholders, who have spent several years watching the value of their investment dissipate under weak management, are happy to wait patiently for news – particularly following Gary Bell’s recent media statements about a delisting being on the cards.

Read:

Crucial details

Two US-based shareholders have called on the board to appoint a committee to explore the sale of the business to ensure that the best price is secured for all shareholders. In addition they have issued a request in terms of the Promotion of Access to Information Act (Paia) for access to the full record of last year’s annual general meeting.

The company has released results of the resolution voting at the AGM, but unlike previous years has provided few of the details of the question-and-answer discussion held during the meeting.

Those details will play a crucial role in what looks likely to be an acrimonious legal battle against IA Bell if it is planning to delist and if that plan includes an offer to minority shareholders based on something closer to the Bell share price than its NAV.

At stake is who gets the approximate R2 billion of discount between the current share price and the NAV – will IA Bell be able to grab all of it, or will it have to share it with the long-suffering shareholders?

Minorities believe that even if a delisting isn’t on the cards, IA Bell is required to make an offer to them because the purchase of the Deere shares constitutes a change of control. The offer to minorities will have to match the price paid to Deere, which is likely to be considerably more than the current share price.

Voting rights

Kerem Aksoy of New York-based Glacier Pass Partners contends that since 2012 the shareholders’ agreement between IA Bell and Deere prevented the former from exercising any control over Bell Equipment.

In that year Deere stepped down from the board because of concerns of falling foul of the US Clayton and Sherman Antitrust Acts, the equivalent of South Africa’s competition legislation. And in accordance with the shareholder agreement, the IA Bell directors also left the Bell Equipment board.

Today IA Bell has no ability to vote executive directors on the board because of restrictions placed on their voting rights. Those restrictions will fall away when IA Bell buys Deere’s shares, which means it will then control Bell Equipment.

Minority shareholders believe the 2012 board changes triggered the decline in Bell Equipment’s fortunes and that the reintroduction of IA Bell as a hands-on controlling shareholder will reverse that decline.

If it manages to avoid having to make a mandatory offer after acquiring the Deere shares and goes on to pursue a delisting, IA Bell will be pressured to make a ‘fair and reasonable’ offer to Bell Equipment’s minority shareholders.

It is in the defining of ‘fair and reasonable’ that the details of the AGM discussion will be crucial.

As most of those who attended the AGM, including journalists, will recall, Gary Bell stated that he believed Bell Equipment shares were worth NAV “or more”. At the time, NAV was around R36.

Minority shareholders concerned

Minority shareholders are concerned that IA Bell is intent on delisting Bell Equipment and will then implement the management changes they’ve been calling for.

In this way IA Bell will capture the full value of the shares alluded to by Gary Bell during the AGM, which is equivalent to around R2 billion.

On Monday Gary Bell told Moneyweb that the Paia request is “under consideration” and that Bell Equipment would respond directly to the parties involved.

Ahead of that response, it’s difficult to see how IA Bell will manage to avoid a tough legal battle with those parties.

On Tuesday shareholder Carson Mitchell of Shipyard Capital Management LLC told Moneyweb: “Through its words and actions, IA Bell has made it clear it thinks Bell is undervalued to the tune of 5 or 6x.

“This calls into question what duties are owed to Bell Equipment by Gary Bell in his capacity as director of both Bell and its presumed acquirer, IA Bell,” says Mitchell.

“If Gary thinks the business is worth 5-6x, then why is he not shopping the company in his capacity as chairman of Bell?

“And why is the company refusing to issue AGM minutes that accurately reflect Gary’s view of fair value?

“The fact that price sensitive information is being deliberately withheld from shareholders makes the hoped-for delisting look predatory rather than opportunistic.”

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COMMENTS   4

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Thanks Ann, good reporting; maybe worth a punt.

Deere is here… Very soon you will see Deere Yellow machinery all over Southern Africa supported by very capable agricultural dealers with all the technology and after sales support you can imagine. The yellow machinery market will not be the same in a year from now and Bell’s happy-go-lucky streak will come to a screeching halt.

1. “The prospect of the repurchase of John Deere’s 31% stake triggering a mandatory offer…” I don’t believe a mandatory offer is triggered as Bell already owned in excess of 35% of the voteable securities. As I understand s123 of the Act, a mandatory offer is only triggered when the 35% level is initially crossed. So going from 39% to 70% on its own would not trigger a mandatory offer.

2. ” …IA Bell is required to make an offer to them because the purchase of the Deere shares constitutes a change of control.” Change of control is not considered in s123 pertaining to mandatory offers. It is noted in reg 85 but only as it pertains to pyramid structures. Control is usually a consideration for determining related and inter-related parties for the purposes of the Act and the JSE Listings Requirements.

3. If a delisting is going to be proposed, any board members related to IA Bell would not be part of the Independent Board who would have to consider the transaction. In addition, the IA Bell controlled shares would not be able to vote on a deal, so whatever offer is put forward will need to be approved by the minority shareholders themselves.

4. Is it likely that they would make an offer at NAV? Extremely doubtful. What would be fair? Perhaps a premium to the share price if minorities want cash or they can keep shares in the unlisted entity (similar to the Anchor Capital deal) and thus still retain their exposure to the NAV of the business…

Thanks for keeping us up to speed on all this “gaan’ing aan” at Bell, Ann…

Really is very disappointing to see how the major positive steps taken in getting the company into a strong, dividend paying position in 2012 has been whittled away behind the fog of this executive management team.

Major politicking at play to the detrement of shareholders. We werer set to benefit from the opportunities opening into the African Union only to be dashed by a so-called internal fraud in the Congo.

This was simply the tip of the ice berg as one poor decision after another and a total total lack of initiative descended from this board like a series of African plagues. I suspect a deeper forensic audit and even private investigation into many of the poor plays since 2012 would reveal some skeletons in this closet.

Good that you are keeping your beady eye on these shenanigans.

End of comments.

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