Investment company ATON, which is preparing a mandatory offer to buy all the shares in Murray & Roberts (M&R) it does not already own, has reiterated it steadfast opposition to M&R’s proposed acquisition of Aveng, describing the proposed Aveng transaction as a “poison pill” to prevent a takeover of M&R by ATON.

The German company already holds about 44% of the JSE-listed engineering and construction group.

ATON reaffirmed its position in response to written questions posed by Engineering News Online, following an investor call during which M&R chairperson Suresh Kana revealed that M&R would be meeting with ATON to discuss the merits of the proposed Aveng acquisition.

ATON refused to confirm the meeting, saying only that it “does not comment on any communication with M&R”.

Nevertheless, it questioned the transaction’s strategic rationale, arguing that the Aveng acquisition conflicted with M&R’s strategy of exiting the general construction and manufacturing businesses.

“From a strategic perspective, only a small portion of Aveng, its mining business, which accounted for around 15% of total revenue over the first half of its 2018 financial year, might have a strategic fit with M&R, whereas the remainder is essentially a loss-making construction and manufacturing related business,” ATON explained.

Besides questioning the logic of acquiring a loss-making, debt-laden “conglomerate” in order to gain a small portion of its activities, ATON argued that the transaction would also “impose significant and unpredictable risk to M&R”. In 2017, Aveng reported a loss of R6.7-billion and an increase in debt to over R3-billion.

“Only the Aveng bondholders will benefit from this transaction, whereas the rating and risk profile of M&R would deteriorate dramatically,” ATON told Engineering News Online. It also believed that the Aveng transaction would distract M&R from focusing on growth opportunities in mining.

However, both M&R and Aveng continue to extol the virtues of the proposed combination, which M&R says will integrate surface mining capabilities to its underground mining prowess, while adding infrastructure delivery capacity in Australia. The companies have also stressed that Aveng will be selling its noncore manufacturing and general construction businesses.

Nevertheless, ATON says it concurs with the assessment of Old Mutual Wealth portfolio manager Roy Topol, who has described the proposed Aveng transaction as an attempt to introduce a “poison pill” in to ATON’s takeover bid.

The German group also disputes the M&R independent board’s assessment of its R17-a-share offer price being too low and questions the board’s fair-value range of between R20 and R22 a share.

“Given the M&R share price performance prior to the ATON offer and its three-year volume weighted average price of R12.52 does support that a price of R17 is more than fair.”

ATON notes that, the average takeover premium on the JSE for deals of between $400-million and $3-billion is around 26%. “We are not aware of a premium of greater than 75% on the share price being offered on a significant takeover transaction in the South African market.”

ATON says it is, therefore, again “surprised and disappointed by the hasty reaction of the Independent Board on ATON’s offer increase, especially in light of the Takeover Special Committee (TSC) ruling that the Independent Board’s prior conduct was hasty and contravened the Companies Act”.

In a recent ruling the TSC, which was convened to adjudicate complaints by both M&R and ATON regarding ATON’s initial offer and M&R’s response, found M&R’s independent board to be in contravention of sections in the Companies Act designed to prevent actions designed to impede, frustrate or defeat an offer.

The TSC also directed ATON to withdraw its voluntary offer to M&R shareholders and ordered that it be made a mandatory offer on the same or similar terms to those contained in the ‘Forward Sale Agreement’ entered into between ATON and Allan Gray.

ATON also contradicted Kana’s statement that it had become increasingly difficult for ATON to find support even at the increased price of R17, given that the M&R shares were tightly held among a relatively small group of shareholders.

“This statement is contrary to shareholders recently approaching ATON on an unsolicited basis who want to sell their shares. The announcement of the Aveng transaction has accelerated this as many shareholders shy away from the high-risk profile associated with this transaction.”