The drawn out proposed hostile takeover of Murray & Roberts (M&R) by Aton appears dead in the water unless the German family-owned holding company successfully contests the Competition Commission’s recommendation that the Competition Tribunal prohibit the transaction.
The commission’s recommendation will have come as a surprise to M&R. Henry Laas, group CEO of the listed engineering and construction group, said in February that he believed Aton would obtain regulatory approval and that its hostile takeover bid for M&R was likely to be successful.
This was despite M&R’s independent board’s view that Aton’s increased cash offer price of R17 per share remained below its fair-value price range of between R20 and R22 a share for control of the group.
‘Substantial lessening of competition’ likely
However, Aton’s bid encountered a serious stumbling block on Friday when the commission announced its decision to recommend the prohibition of the proposed transaction because it found it would result in a substantial lessening of competition.
The commission noted that the Aton Group in South Africa, through Redpath SA, provides a range of mining services to sub-Saharan Africa, including the excavation of vertical or inclined openings from the surface for conveyance of miners, materials, ventilation, pumping water, in addition to hoisting ore and waste rock, operational or maintenance activities, infrastructure development and upgrade, and whole-of-mine operational management.
Sipho Ngwema, head of communications at the Competition Commission, said the commission found that the merging parties were close competitors and that the proposed transaction would, for both parties, result in the removal of their closest and strongest competitor.
Ngwema said the commission received concerns during the investigation of the proposed transaction that it would potentially negatively impact potential competitors.
“The concerns were that the merger will potentially create a company that has such size and scale that it has the financial wherewithal to throttle competition.
“Further, the merger [would] create a company that potentially has the financial muscle to buy projects or to discount projects to such an extent that other companies cannot compete,” he said.
Ngwema added that there had not been any suggestion by either Aton or M&R that there existed a likelihood of the current employees of M&R losing their jobs in the foreseeable future.
He said it had also not been argued that M&R was struggling financially or was facing any commercial or business threats which could endanger jobs in the near future.
Unlikely jobs would be protected or created
“Accordingly, the commitment by Aton in relation to the preservation of jobs after the expiry of the Kusile and Medupi projects is not tantamount to saving jobs or the creation of new employment opportunities.
“M&R has not indicated any difficulties in retaining its current employees in the future.
“Even if the commission were to find that there is a chance of M&R not being able to retain employees, the commitment would amount to job preservation which the commission generally expects from an acquirer who is acquiring another firm with a view of saving it,” he said.
Aton can contest
Following the announcement of the commission’s decision, M&R advised shareholders that Aton had the right to contest the recommendation, which, if it did, would result in the convening of a pre-hearing conference by the Competition Tribunal within 10 business days of the recommendation.
M&R said a timetable would be determined at the pre-hearing conference, with the tribunal thereafter determining an appropriate set-down date for a merger hearing.
The group said the tribunal could, following the merger hearing, either prohibit or approve the merger with or without conditions.
M&R stressed that should Aton decide not to contest the recommendation, the mandatory offer would fail in accordance with its terms.
Aton said in response to a request for comment that it would consider the Competition Commission’s recommendation related to its proposed acquisition of M&R once the commission’s underlying reasons were available.
Aton owns 44% of M&R’s shares and in June further extended its initial long-stop date of March 31 to September 30 for declaring the offer unconditional because it appeared unlikely the process of obtaining merger control clearances and/or approvals from the competition authorities for the mandatory offer would have been finalised.
M&R’s share price slumped following the commission’s announcement of its decision, closing 14.5% lower at R11.80 on Friday compared to its previous close of R13.80.