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Scheme to buy out Bell Equipment minorities at R10 a share an exercise in futility?

Two institutional investors owning 8.6% indicate they will vote against the scheme.
Sanlam and Allan Gray are among the minority shareholders who say they won’t be supporting the offer. Image: bellequipment.com

The scheme by IA Bell, the Bell family holding company and largest shareholder in Bell Equipment, to offer to acquire all the shares it does not already own in the JSE-listed company appears to be an exercise in futility at the R10 per share offer price.

This follows two institutional investors which own and/or control about 8.6% of the issued share capital of Bell Equipment indicating that they will vote against the offer.

A third institutional investor declined to indicate how it will vote.

In a joint announcement last month, Bell Equipment and IA Bell made the long anticipated announcement that IA Bell has now given notice of its firm intention to make the offer via a scheme of arrangement but IA Bell stuck to its initial indicative offer price of R10 a share despite previous criticism from minority shareholders that this significantly undervalued the company.

Bell Equipment had a net asset value per share of R37.79 at end-June 2021, its most recent financial results.

Shares in the company rose 4.84% on Friday to close at R13 – 30% higher than the offer price.

This followed Bell Equipment on Friday releasing a trading statement in which it said the company expects to report earnings per share and headline earnings per share of at least 300 cents for the year to end-December.

This is a 367 cents per share increase in earnings per share and 331 cents per share improvement in headline earnings per share compared with the loss per share of 67 cents and headline loss per share of 31 cents in the prior year.

Bell Equipment attributed the expected increase in earnings mainly to stronger market conditions, which has had a positive impact on production and sales performance.

The trading update did not make any mention of the scheme of arrangement, which if successful, will result in the delisting of Bell Equipment from the JSE.

Attempts to obtain comments from Bell Equipment were unsuccessful.

Minority shareholders’ comments

Marlo Scholtz, head of equity research and a portfolio manager at Sanlam Investments, confirmed that Sanlam is a minority shareholder in Bell Equipment with about 3% of the company’s issued shares and will not be supporting the offer.

“We don’t believe that R10 is a fair price. It is at a 32.2% discount to the market price on the day the R10 offer was announced, below the NAV of R38 and below our estimate of intrinsic value.

“We are monitoring the matter closely and looking into the developments at Bell Equipment and will make a decision that is in the best interest of stakeholders,” he said.

Varshan Maharaj, a portfolio manager at Allan Gray, confirmed that its clients own 5.6% of Bell Equipment’s shares in issue and expressed similar sentiments to Sanlam about the R10-a-share offer price.

“We do not support the tabled resolution as the offer is well below our assessment of the intrinsic value of the business,” he said.

A third institutional investor, Ninety One, declined to answer specific questions about its shareholding in Bell Equipment.

“Ninety One has confirmed that they won’t be disclosing how they will vote, but reiterate that they are committed to seeking the best outcome for their investors,” said a representative from the firm’s external communications company.

Carson Mitchell, the managing member of Shipyard Capital Management LLC, told Moneyweb last month the R10 offer from the Bell family “is not serious”, adding that IA Bell do not have the votes to get a scheme of arrangement approved and did not get commitments from any of the three institutional shareholders – Sanlam, Allan Gray and Ninety One – and the offer price is below the price in the market.

‘Reckless’

“Putting this offer to the market in the middle of a trading session was reckless, and I wouldn’t be surprised to see an action brought against Bell’s board for allowing it,” he said.

Mitchell previously indicated that Shipyard Capital Management LLC controlled 1.2 million shares in Bell Equipment.

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The planned offer to Bell Equipment minority shareholders follows IA Bell’s acquisition of 30 million Bell Equipment shares for R10 per share from John Deere Construction & Forestry Company effective from September 28, 2021.

The finalisation of the John Deere transaction means IA Bell now owns 70.1% of the issued share capital of Bell Equipment.

In terms of the scheme of arrangement, only the owners of the 29.45% of the shares not already owned by IA Bell or certain shareholders who are related to or acquaintances of the founders of Bell Equipment will be able to vote on the proposed scheme.

An analyst who did not want to be named said only the about 30-million shares not owned by IA Bell will be allowed to vote on the scheme of arrangement.

“Since a 25% vote is sufficient to kill it, it would seem that even the non-institutional shareholders are able to block the scheme,” he said.

The analyst added that if this offer fails or is withdrawn, IA Bell will be barred from making another offer for the next 12 months in terms of the provisions of the Companies Act.

Expert opinion not yet known

Bell Equipment said last month the independent board appointed to consider the IA Bell offer had appointed BDO Corporate Finance as the independent expert to express an opinion on whether the scheme consideration is fair and reasonable to eligible shareholders, which will be provided with the circular to shareholders.

The circular providing details on the scheme of arrangement, and the fair and reasonable opinion report of BDO Corporate Finance, has not yet been published or circulated to Bell Equipment shareholders.

All of the conditions of the scheme of arrangement must be fulfilled – except where waiver or adjustment is permitted – by March 1, 2022.

The delisting of Bell Equipment, subject to the fulfilment of all the scheme conditions, including the approval of the scheme by eligible shareholders, will take place on March 15, 2022.

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