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Bell Equipment buyout of minorities and delisting still on the cards

But committed offer several months away.
The transaction is still subject to IA Bell's proposed acquisition of John Deere’s 31.4% shareholding in Bell Equipment. Image: Supplied

The proposed buyout of minority shareholders in Bell Equipment and the delisting of the JSE-listed manufacturer of heavy equipment for construction, mining and agriculture is still on the cards.

Bell Equipment advised its shareholders last month it had received a non-binding expression of interest from IA Bell and Company (Pty) Ltd, the private company majority-owned by the Bell family and currently a 38.7% shareholder in Bell Equipment, about a possible transaction to acquire – by way of a scheme of arrangement – the entire issued ordinary share capital of Bell Equipment not already held by it.

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However, this possible transaction is still subject to IA Bell’s proposed acquisition of John Deere’s 31.4% shareholding in Bell Equipment becoming unconditional and being implemented, which will increase its shareholding in Bell Equipment to 70.1%.

IA Bell previously reached agreement with John Deere to acquire its 31.4% shareholding in Bell Equipment for R10 a share.

Bell Equipment chair and former group CEO Gary Bell said there are still one or two conditions precedent outstanding in the John Deere transaction, such as the regulatory requirements, including competition authority approval in various jurisdictions.

“Most of them are done but a few are outstanding. It’s quite unpredictable but I think all of the approvals could be done in a six-month period. We are about two or three months into this,” he said.

Read: ‘Goodbye Deere’

Gary Bell referred further questions about the proposed buyout of minority shareholders to Bell Equipment CEO Leon Goosen because he is conflicted and also not part of the independent board that is dealing with the proposed transaction.

Goosen said to date they have only received the non-committed intentions of IA Bell but believe the John Deere transaction is getting closer to finalisation.

He said it is unlikely any competition authority will have any issues with the proposed IA Bell and John Deere transaction.

Rationale

Commenting on the rationale for the proposed buyout of minority shareholders and delisting of the company, Goosen said that Bell Equipment as a capital goods manufacturer has extremely long-term strategies that “don’t really care about financial year-ends and global business cycles that also don’t care about our strategies”.

Goosen said Bell Equipment, for example, has for several years had a strategic intent to develop further intellectual property because as an original equipment manufacturer (OEM) it is “a sort of a one-trick pony” with its articulated dump truck (ADT).

“We set out to design more products that we could manufacture that would help us with our overhead recoveries and costs and become countercyclical to the ADT market,” he said.

However, Goosen said it takes five to six years to bring these products to market for the first time because of the research and development as well as  testing, ensuring its competitiveness and that it meets customer’s requirements.

Goosen said Bell Equipment has been explaining to shareholders and analysts how it plans to fix its profitability, which is a long-term project.

If sales volumes fall from one year to the next, this cannot impact the number of engineers the company needs to commit to its longer-term projects, he said.

Goosen added that if there is “a Covid-19 year” where the company sells 20% less of a certain product, it cannot suddenly reduce its headcount by 20% because it has sold this product for the past 25 years and still has to provide technical advice and support to its customers.

“The family sees this more as a family company with long-term objectives, like some of the other global OEMs. But this [listing] does not suit that, with the short-term reporting periods and the scrutiny … on immediate profits as opposed to long-term sustainability,” he said.

Goosen said Bell Equipment could quite easily meet the demands of shareholders that have a short-term objective but this is not how the company is structured and how it is executing its strategies.

‘Opportunistic shareholders’

“Many of these shorter-term shareholders are nothing more than opportunistic shareholders and are looking for hopefully having bought cheap and selling as high as possible,” said Goosen.

“This is a very complex business and it’s a very tough environment.

“We are up against global giants and therefore … we could quite quickly find ourselves with stale product because we did not invest enough in R&D,” said Goosen.

“There is also some new movement in the industry in terms of autonomous vehicles and being autonomous-ready and [having] new technology … and we need to invest appropriately in this, which costs money.”

Bell Equipment last week reported that a 14% decline in sales in the year to end-December 2020 resulted in the company making a loss after tax of R57.2 million after reporting a R52.3 million loss for the six months to June 2020.

It said Covid-19 and subsequent lockdown restrictions had a devastating impact on the supply chain, customer operations and purchases while overall global markets shrunk and competition increased, putting margins under immense pressure.

Sentiment

Goosen said the sentiment going into 2021 has been cautiously optimistic from most regions with a healthy order book in place for the first half of the year.

“An easing of restrictions for business is evident, with several mining and infrastructure projects coming online or being unlocked in the short term.

“Restructuring is being investigated in terms of location rationalisation and efficiency improvements. However, no retrenchments are planned at this stage as people are critical to our operational objective of selling to and supporting customers and their Bell machines,” he said.

Goosen said the industry outlook for South Africa remains depressed as the country grapples with low infrastructure spending in a weakened economy with spiralling national debt but Bell Equipment’s announced partnership with JCB should lead to some gains within the markets and growth for the company.

Shares in Bell Equipment rose 3.63% on Friday to close at R10.

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With a NAV of around R45 a share and a share price of R10 it is obvious to investors that this is a cyclical business very dependent on cutting edge R&D going forward. A share to go long on. No way is it a sell at this level, we have been up around R30 a share many times previously!

Insiders then start reporting mysterious frauds during expansionary periods and making nefarious takeover intimations in down periods.

It should come as no surprise that those same long vision supporters/ investors in the African yellow dream will now get nervous and disgruntled at the unsavoury tactics.

Shared vision of a healthy sized minority should now search far and wide for a better suitor than these conflicted, indigent and unfriendly insiders.

What goes around comes around- even if they do have their way, in the longer term an international competitor with a healthy listing will most likely integrate and absorb them. At the cost of the loyal minorities.

Appears certain greedy ones wish to secure the built up long term value for themselves without showing commensurate respect, care and diligence for the sustained long term efforts that have enabled this potential African Lion to rise up from the dust.

Bad Ubuntu, Hamba!

With Deere Yellow machinery now officially available in Southern Africa, a very large Ag Dealer footprint supporting it, a very loyal brand following and a huge parts warehouse, I have bad news for Bell…

Remember, a few of the Bell branded machinery is actually 100% Deere.

End of comments.

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