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Independent Board Response to Firm Intention Announcement by ATON GMBH (“ATON”) and Withdrawal of Cautionary Announc
MURRAY & ROBERTS HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
Registration number 1948/029826/06
JSE Share Code: MUR
ADR Code: MURZY
ISIN: ZAE000073441
(“Murray & Roberts” or the “Company”)
INDEPENDENT BOARD RESPONSE TO FIRM INTENTION ANNOUNCEMENT BY
ATON GMBH (“ATON”) AND WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
IMPORTANT NOTICES TO MURRAY & ROBERTS’ SHAREHOLDERS
Capitalised terms used in this preamble have the same meaning as the body of the
announcement
* The board of directors of Murray & Roberts have constituted an Independent Board in
accordance with the Companies Act.
* Following the Independent Board’s review of the firm offer letter received from ATON,
the Independent Board hereby provides its views and further guidance to Murray &
Roberts shareholders:
- the Offer is opportunistic and made at a time of unprecedented share price weakness as
a consequence of low liquidity, declining valuations of its legacy peers in the Construction
sector and halting of the Company’s share buy-back programme in 2017;
- the cash offer price of ZAR15.00 per Murray & Roberts’ share materially undervalues the
Company based on its prospects;
- the rationale presented by ATON for the Company and South Africa is weak in a number
of material respects.
- at the proposed Offer Price, the Independent Board is of the view that the prospects of
ATON successfully delisting Murray & Roberts is very low;
- scenarios where ATON accretes its shareholding but does not delist Murray & Roberts
presents risks to Murray & Roberts’ shareholders and ATON, including conflicts of interest,
strategic misalignment and reduced strategic flexibility and potentially casts the Company
adrift into a protracted period of uncertainty as ATON gradually increases its shareholding
and attempts occasionally to delist the Company; and
-it is not clear how ATON proposes to manage the dilution of Murray & Roberts’ B-BBEE
ownership credentials and the potential resultant impact on material contracts and
employment;
* Accordingly, the Independent Board advises that it will be recommending to Murray &
Roberts’ shareholders to not accept the Offer, when made. No further action should be
taken by Murray & Roberts’ shareholders in connection with the Offer.
1. INTRODUCTION AND INDEPENDENT BOARD
Shareholders of Murray & Roberts are referred to the cautionary announcement released
by Murray & Roberts and the firm intention announcement released by ATON (“Firm
Intention Announcement”) on SENS on Monday, 26 March 2018 in relation to ATON’s firm
intention to make a general offer to Murray & Roberts’ shareholders (“Offer”) at cash offer
price of ZAR15.00 per Murray & Roberts share (“Offer Price”).
In accordance with the requirements of the Companies Act, 71 of 2008 (“Companies Act”),
the board of directors (“Board”) of Murray & Roberts has constituted an independent board
(“Independent Board”) comprising the following independent non-executive directors:
- Suresh Kana (Chairman)
- Ralph Havenstein
- Alex Maditsi
- Diane Radley
2. INDEPENDENT BOARD REVIEW AND FURTHER GUIDANCE FOR
SHAREHOLDERS
The Independent Board has completed its review of the firm offer letter received from ATON
(“Firm Offer Letter”) together with its advisers. The views of the Independent Board are
summarised below:
2.1. Offer price
ATON acquired the majority of its existing minority shareholding of approximately 29.9% in
the Company at or around ZAR15.00 per share. In November 2017, ATON voted down the
requisite resolution necessary for the Company to continue its on-market share buy-back
programme, when the majority of the Company’s shareholders were supportive of the
initiative. This action compounded by a period of low liquidity and declining valuations amongst
the Company’s legacy peer group in the listed Construction sector has precipitated a period
of unprecedented weakness in the Murray & Roberts’ share price. ATON is now seeking to
acquire control of the Company at the same price it acquired a minority shareholding whilst
promoting a substantial premium to the current share price as the central reason why Murray
& Roberts’ shareholders should find the Offer attractive.
It is the Independent Board’s view, supported by the analysis of its financial adviser, that the
proposed cash offer price of ZAR15.00 per Murray & Roberts’ ordinary share for full control of
the Company materially undervalues Murray & Roberts based on its prospects. The
Independent Board will accordingly be recommending to the Company’s shareholders that
they do not accept the Offer as construed, once it is formally made to them. The Independent
Board will obtain a fair and reasonable opinion in due course and thereafter, formally publish
its recommendation to shareholders as it is required to do in terms of the Companies Act.
2.2. Rationale
The Independent Board notes the rationale provided by ATON for considering the Offer. The
Independent Board does not agree with ATON’s views on the benefits for the Company and
South Africa in a number of material respects, specifically:
2.2.1. Underground Mining:
- As stated in the Company’s interim financial results presentation, the Underground
Mining platform reported strong performance with growth in its order book, revenue
and operating profit compared to the previous comparable period. The Underground
Mining platform also achieved significant improvement in operating margin. All of the
global operating regions, including Africa, Australasia and the Americas contributed
towards this.
- The recent improvement in commodity prices and increased investment activity by
the Company’s mining clients will further support the near-term prospects of the
business. The Company is well-positioned to secure new opportunities that would
significantly increase the order book in the near term. These opportunities could,
however, potentially be jeopardised by the Offer.
- The combination of the Murray & Roberts Underground Mining platform and Redpath
Mining Inc. (formerly J.S. Redpath Holding) (“Redpath”) presents limited strategic
rationale at the current time and would in any event have to be accomplished post
the Offer, if implemented. Exploratory discussions between Murray & Roberts and
ATON during 2015 in relation to a combination of Redpath and the Underground
Mining platform ceased because Murray & Roberts could not reach agreement with
ATON regarding the proposed transaction structure and relative value. It is the view
of the Independent Board that the current combined market share of these
businesses may reduce post a possible combination.
2.2.2. Oil & Gas
- Muted activity in the oil and gas sector has had a negative impact on the revenue
growth of the Oil & Gas platform. However, the Company has managed to maintain
good profitability in a challenging and competitive environment.
- Brownfield operations and maintenance opportunities are expected to be the main
source of earnings from the Oil & Gas sector for the Australian region until about
2021. New greenfield opportunities are expected to be in Papua New Guinea as
energy producers are progressing work associated with new liquefied natural gas
facilities.
- Murray & Roberts is currently expanding its international operations with a planned
acquisition in the USA. Complementary markets previously serviced by Clough
Limited, a Murray & Roberts’s subsidiary incorporated in Australia, such as the
mining and infrastructure markets in Australia present significant opportunities.
2.2.3. Power & Water
- The power sector in South Africa presents few new opportunities, with the Power &
Water platform in this sector underpinned by the Kusile and Medupi projects.
- There are, however, an increasing number of new opportunities in the water
treatment sector in South Africa with this segment yet to achieve scale. It will in time
materially contribute to Murray & Roberts earnings.
- The Power & Water platform is continuously looking to replenish its order book with
particular focus on prospects in complementary markets such as mining, pulp and
paper, chemicals and energy in sub-Saharan Africa.
2.2.4. Capital allocation and non-core assets
- The Company adopts a disciplined approach to capital allocation focused on
generating returns for the Company’s shareholders both in the short- and long-term.
- In 2017, the short-term capital allocation strategy for the Company involved
increasing the Company’s effective shareholding in Bombela Concession Company
(RF) (Proprietary) Limited (“BCC”) to 50% and in the absence of other return
enhancing opportunities, returning capital to shareholders via a share repurchase
programme.
- Murray & Roberts is currently in the process of pursuing both organic and acquisitive
opportunities, which the Board believes will have the potential to add significant
value. The Board will, however, continue to adopt a disciplined and deliberate
approach when evaluating these initiatives.
- It is unclear which of Murray & Roberts’ businesses or markets would be identified
by ATON as non-core. With respect to BCC, the Independent Board believes that
the annuity income provided by the additional investment creates a value underpin
in a cyclical operating environment. The Independent Board is firmly of the view that
a breakup of the Murray & Roberts’ group would inevitably destroy value and
negatively impact employment.
2.2.5. Management capacity and knowledge transfer
- It is unclear to the Independent Board how ATON will add capacity and facilitate
skills transfer to the Company’s existing operational experience and capabilities,
specifically in the Oil & Gas Platform.
2.2.6. Impact of empowerment and employment
- Murray & Roberts is committed to a number of broad-based black economic
empowerment (B-BBEE) initiatives in South Africa and is an accredited Level 4
B-BBEE Contributor with economic interest ownership by existing Murray & Roberts
B-BBEE shareholders and black women of approximately 54.7% and 18.9%
respectively.
- The Company’s support for B-BBEE programmes and the promotion of social and
economic development of previously disadvantaged communities and individuals is
particularly important in the context of the Company’s underground mining
operations in South Africa.
- The Independent Board notes with concern the significant risk of dilution to the
Company’s B-BBEE ownership profile on a flow through basis, with potentially
severe implications for the Company’s current mining contracts and its ability to
secure future mining contracts in South Africa. It is again not obvious from the Firm
Offer Letter how ATON proposes to address this post the Offer, if implemented in
any of its forms.
- Finally, Murray & Roberts is currently a significant employer in South Africa, with
approximately 10,700 employees. The impact of the Offer on material contracts of
the Company and therefore the Company’s employees, is a significant concern for
the Independent Board.
2.3. Offer mechanism
In the Independent Board’s view, the mechanism proposed by ATON to implement the Offer,
presents risk to both the Company’s shareholders and ATON.
The Offer contemplates three possible outcomes from an ATON perspective, namely:
2.3.1. ATON acquires the entire issued share capital of Murray & Roberts other than those
shares already owned by ATON and its subsidiaries, and delists the Company; or
2.3.2. ATON acquires sufficient ordinary shares to increase ATON’s shareholding to a
shareholding of between a minimum 50% plus 1 ordinary share and up to a
maximum of 90% of the entire issued share capital of the Company; or
2.3.3. ATON simply acquires additional shares to accrete ATON’s existing shareholding
up to below 50% of the entire issued share capital of the Company, in the event that
the Offer fails or is withdrawn.
The Independent Board assumes that any of the outcomes would be acceptable to ATON.
The Independent Board is of the view that the prospects of ATON successfully acquiring all
the ordinary shares in the Company that it does not already own and delisting Murray &
Roberts at the proposed cash offer price is very low.
The focus of the Independent Board has therefore been on the risks to Murray & Roberts’
shareholders, including ATON, inherent in each of the scenarios set out in 2.3.2 and 2.3.3
above, where ATON appears content to potentially increase its shareholding without acquiring
the entire share capital of the Company. In these scenarios, we are particularly concerned that
ATON’s position will:
i. introduce material conflicts of interest between ATON and the Company;
ii. heighten the potential for strategic misalignment between the executive management
and the Board and thereby reduce strategic flexibility for Murray & Roberts;
iii. prejudice minority shareholders as a consequence of i. and ii. above as well as diluting
the B-BBEE ownership profile above and by further reducing the liquidity in Murray &
Roberts’ shares on the JSE; and
iv. cast the Company adrift into a protracted period of uncertainty as ATON gradually
increases its shareholding and attempts occasionally to delist Murray & Roberts, as it
ultimately appears it must do in order to fully carry out the strategic agenda outlined in
the Offer.
In light of the Independent Board’s assessment of the likely outcomes above, the Independent
Board affirms its view that the Offer as presented is not in the best interests of the Company
or its shareholders and that the opportunity for shareholder value creation is higher for the
shareholders under the status quo.
2.4. Regulatory
The Independent Board is of the view that there is no basis in the Firm Offer Letter or the Firm
Intention Announcement to substantiate ATON’s conclusion or to provide comfort to Murray &
Roberts’ shareholders that the contemplated acquisition of shares pursuant to Offer or
otherwise does not give rise to competition concerns.
2.5. Cooperation
Based on the views outlined above, the Independent Board would not be willing to cooperate
with ATON to implement the Offer as construed. Accordingly, the Independent Board will not
recommend that the Board enter into the implementation agreement as proposed by ATON.
The low offer price, in conjunction with the risks presented in execution, make the Offer
particularly unattractive for Murray & Roberts’ shareholders.
3. APPOINTMENT OF INDEPENDENT EXPERT
Murray & Roberts’ shareholders are advised that the Independent Board has appointed
BDO South Africa Services (Proprietary) Limited as independent expert in accordance with
the Companies Act, to prepare and issue a report as to whether ATON’s proposed offer is
fair and reasonable.
4. GUIDANCE FOR SHAREHOLDERS AND WITHDRAWAL OF CAUTIONARY
ANNOUNCEMENT
Murray & Roberts’ shareholders are advised that, as at the time of this announcement, no
offer has been made by ATON. ATON has indicated its intention to post an offer circular to
Murray & Roberts’ shareholders on Thursday, 5 April 2018. The Independent Board will
cause its recommendation along with a fair and reasonable opinion to be set out in a
response circular to be sent to Murray & Roberts’ shareholders as soon as practicable after
that date.
Importantly, no action should be taken by Murray & Roberts’ shareholders in connection
with the Offer in line with this announcement.
As all information pertaining to the Offer is now in the public domain, Murray & Roberts’
shareholders are advised that they no longer need to exercise caution when dealing in the
Company’s securities.
5. RESPONSIBILITY STATEMENT
The Independent Board accepts responsibility for the information contained in this
announcement and certifies that, to the best of its knowledge and belief, the information
contained in this announcement is true and nothing has been omitted which is likely to affect
the importance of the information.
6. CONFERENCE CALL
A conference call will be held at 16h00 today, 27 March 2018. Details are as follows.
Johannesburg (Telkom) - 010 201 6800
Johannesburg (Neotel) - 011 535 3600
Australia (Toll Free) - 1 800 350 100
USA and Canada - 1 508 924 4326
Participants to ask to be joined into the Murray & Roberts Holdings Limited call.
For all other media enquiries, please contact:
Ed Jardim
Group Investor and Media Executive
Murray & Roberts
+27 11 456 6379
Bedfordview
27 March 2018
Financial adviser and transaction sponsor
Deutsche Bank
Legal adviser
Webber Wentzel
Independent expert
BDO South Africa Services (Proprietary) Limited
Sponsor
Deutsche Securities (SA) Proprietary Limited
Date: 27/03/2018 01:41:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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