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Delisting Murray & Roberts won’t be that easy

Unless the PIC agrees.
The big question is what will happen to M&R after a successful Aton takeover. Image: Moneyweb

The next two months could determine the future of engineering and construction group Murray & Roberts (M&R) as shareholders consider the offer made by the firm’s minority shareholder, German investment holding company Aton GmbH, to buy their shares at R17 each.

M&R shares traded at R14.02 each late on Tuesday, down 3.71% on the day.

A year ago, the share price was however considerably lower at R12.25.

Aton’s offer expires on March 31, and while the group would have the option to extend it, chances seem good that it might increase its current shareholding of almost 44% to a majority stake and take control of M&R by that date.

The most important hurdle to cross is the approval of the competition authorities in South Africa and several other jurisdictions.

The big question is what happens to M&R after a successful Aton takeover.

Aton earlier indicated that “depending on the level of acceptance received by Aton, Aton will consider whether or not to apply for the delisting of M&R from the JSE.”

That may not be so easy, sources close to the situation say.

Firstly, should the competition authorities approve the transaction, one would have to see whether they attach any conditions regarding the listing.

If that is not the case and the transaction gets the green light, JSE listing requirements indicate that a company could apply for delisting, but only under strict conditions.

It must make an offer to all shareholders to buy their shares and such offer must be certified to be fair by an independent expert. Over and above that, more than 50% of the shareholders, excluding the controlling shareholder (in this case Aton) must approve the delisting.

This is where things could become difficult.

The Public Investment Corporation (PIC) in April last year increased its stake in M&R to more than 20%, up from 15.34%. At that stage Aton was offering M&R shareholders R15 per share.

Undervalued

M&R itself has maintained all along that the share is undervalued, and that a fair price would be between R20 and R22. This was supported by an independent report, and the PIC agreed.

If Aton’s shareholding of 44% is excluded from a vote about delisting, the PIC’s more than 20% could be enough to preclude a majority vote in favour of delisting.

If Aton tried to sweeten the deal for the PIC, it would be required to extend any higher offer it might make to the PIC to all other shareholders within six months of the transaction.

But what is Aton really interested in?

In the first full financial year of the new-look M&R (2017/18), the company transformed itself from a predominantly South African civils and building contractor to a multinational engineering and construction group focused on natural resources.

It now operates on three platforms – oil and gas, power and water, and underground mining – and has a strong presence in Australasia through its subsidiary Clough.

In a business update in November, hopes were still high that the Wheatstone and Ichthys projects that were nearing completion could be replaced. At that stage M&R reported that the order book had shrunk from R6.4 million in June to R5.4 billion at the end of September, but the stabilisation of the oil price at around $70 held some promise for investment in liquefied natural gas (LNG) infrastructure.

The platform nevertheless extended its services into the metals and minerals and infrastructure-complementary markets in Australia to mitigate the drought in the LNG market.

Now the oil price has again dropped to around $60 and the platform is battling to build its order book.

Earlier this month it had some good news when the Clough Salini joint venture, in which Clough has a 35% shareholding, was selected as the preferred bidder for the multi-year AU$4 billion Snowy 2.0 hydro project in Australia, in keeping with its strategy to exploit complementary markets.

The power and water platform is winding down its work at Eskom’s Medupi and Kusile power stations and there are few new opportunities in the local power market.

The platform has reverted to pursuing power plant repair and maintenance work in South Africa and high voltage transmission projects in South Africa and sub-Saharan Africa. For this purpose it has entered into joint ventures with established players in these fields. Despite the dire state of South Africa’s water infrastructure, there is little investment in this area, according to M&R.

The platform’s order book has shrunk from R1.5 billion in June last year to R0.9 billion three months later.

The jewel in the crown

The real jewel in M&R’s crown, and the one that Aton is really after, is the underground mining platform. This is a truly global business and demand for it services is rising as the metals and minerals sector is at the beginning of an upturn cycle, M&R said.

“Exploration is at its highest level in six years and mining equipment delivery times are extending. These are key lead indicators suggesting that the industry has moved into an upturn.”

Its portfolio of work spans most commodities and the order book increased to R24.7 billion at the end of September, compared to R22.1 billion three months earlier. “In terms of new order book opportunities, Murray & Roberts Cementation was recently selected as the preferred bidder on a multi-billion-rand contract mining project on a chrome mine in South Africa,” the group said in November.

Aton earlier stated that mining is one of its key focus areas through its 100% owned Redpath Group, which is based in Canada. Aton describes Redpath as “a global underground mining service provider and contractor”.

It anticipates that the leveraging of its relationships with customers and other stakeholders could improve M&R’s ability to compete internationally and “create a strong platform for geographic expansion throughout Africa and globally”.

Whether that will include M&R’s two smaller business platforms and a presence on the JSE, only time will tell.

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Heydays were from 2006 to 2009 when South Africa experienced a building revival almost reaching R90, thereafter nosedived then hovered at R29 now at R14.00 per share.
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Sad, my late dad and his many family friends worked for this concern from 1970 onwards.
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The government needs to do far more to protect SA business enterprise, as these concerns create local employment and revenue.

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