Industrial equipment company Barloworld’s shareholders that are holding on to their shares could hurt the stock’s trading performance and liquidity if the company fails to reach the 90% threshold required for delisting, consortium backed Newco spokesperson Sydney Mhlarhi has warned.

Speaking to Engineering News on October 10, he urged shareholders to tender their shares promptly to allow Newco to take the company private and delist it fully – a move he said would be better for the company and for the remaining shareholders.

The offer from Newco, which seeks to buy more than 90% of Barloworld, has so far secured about 81.4% of the company’s ordinary shares. Mhlarhi explained that reaching the 90% threshold would be crucial to avoid a situation where only a small proportion of shares remained publicly traded.

“If you remain listed, you have an entity that has essentially one large shareholder at 85% or even 89%, meaning you’re just short of the 90% threshold. Then the free float is very low, which isn’t desirable, not even from a stock exchange point of view,” he said.

Throughout the process, shareholders had been given the opportunity to tender their shares once the offer opened. However, Mhlarhi noted that many investors were reluctant to do so until the deal became unconditional.

“For some shareholders, there’s a reluctance to tender their shares until the deal becomes unconditional. Once it’s unconditional, they know exactly when they’re going to get paid. Before that, they don’t, because payment only happens if the deal becomes unconditional,” Mhlarhi said, noting that once they tendered, the shares would become irrevocable.

The deal became unconditional on October 1, which Mhlarhi said had prompted a wave of additional tenders. Payments had begun, with the first payment made on October 8 to shareholders who accepted the offer.

He highlighted, however, that the time between unconditionality and the original offer deadline was too short. To accommodate shareholders who needed more time to complete administrative processes with their brokers, Newco extended the tender period beyond the original cut-off of October 15 to November 7.

“This was partly the reason for the extension: to allow more time for shareholders to complete the administrative processes and instruct their intermediaries so that they can tender those shares within the remaining available period,” he explained.

Newco’s objective, he added, is to ensure that Barloworld can be taken private cleanly, avoiding the challenges associated with a tiny free float and a largely controlled company remaining listed. Delisting, according to Mhlarhi, would provide a more stable ownership structure, reduce market volatility for remaining shareholders, and simplify governance for Newco.

The buyout is part of Newco’s broader plan to restructure Barloworld under private ownership. With regulatory approvals in place and the deal now unconditional, Newco is aiming for a smooth transition that aligns with long-term strategic goals and maximises shareholder value.

“We are confident that we will reach that 90%, but obviously it’s up to the shareholders. Part of it is that the company has been listed for a very long time – many decades. So, although the shareholder list looks concentrated with the big three shareholders at the top, beyond those, it is actually quite a deep shareholder base,” Mhlarhi said.

Another important group of shareholders, he explained, consisted of index funds and index trackers, which adjust their holdings in response to changes in the free float.

“Index trackers are very clear in how they respond to what they call an index adjustment. That means that as the free float reduces, they adjust accordingly. They usually lag behind developments like this, but even for the index trackers, becoming unconditional was also a key moment. So, we expect some movement coming out of that over the next few weeks,” Mhlarhi said.

BUSINESS AS USUAL

Under Newco’s ownership, Mhlarhi assured that it would mostly be “business as usual”, even after delisting.

He said Newco’s strategy would largely mirror the existing business approach, which has been to identify underperforming divisions or product lines, fix them and then optimise performance.

Over the past five years, under the current CEO Dominic Sewela, this strategy has guided several decisions, including divesting businesses such as Avis and the logistics division.

“The strategy will remain, even in its unlisted form, because it’s about capital allocation and allocating resources to achieve the highest returns. In some respects, it’s business as usual, rather than a massive, grand strategy,” Mhlarhi explained.

He noted that the consortium’s composition also shapes the approach. One of the long-term shareholders, Zahid, operates in Saudi Arabia with business lines that compare with Barloworld’s Caterpillar operations, giving it a strong understanding of that segment.

Simultaneously, Sewela will continue in his role under Newco ownership even after delisting.

This continuity, Mhlarhi asserted, would allow Newco to focus on optimising existing operations and allocating capital efficiently, rather than pursuing sweeping structural changes immediately after delisting.

“The consortium is backing the management team to continue delivering in the next phase. Obviously, the bar has been raised because of the R120 a share value of the company. That’s your investment. That’s now your base. That’s your new benchmark against which you need to measure your return. So that’s very clear to the consortium as it moves forward with the business,” he said.

CATERPILLAR BUY-IN

There have been questions and concerns from investors about how Caterpillar and other key original-equipment manufacturers (OEMs) in Barloworld’s portfolio might respond to the takeover and potential delisting.

However, Mhlarhi assured that Caterpillar, in particular, was and would remain a key part of the business, particularly on the equipment side, and that the bulk of the company’s operations would continue to revolve around the brand.

He explained that Caterpillar’s support had to be secured early and upfront, which was done successfully. He added that the move aligned with Caterpillar’s publicly stated strategy of preferring locally owned, in-country businesses and, importantly, privately owned businesses.

“They have a long history of operating with Barloworld as a franchisee. That long history has demonstrated to them that the best-performing dealers are the ones that are private and locally owned. With local ownership, you are much more in tune with local nuances, and on a private basis, you are a lot more agile in decision-making.”

“Now, the decision-making can be quicker in terms of capitalising on new markets, launching new products and working with Caterpillar behind the scenes to optimise their product lines and make them more relevant for the Southern African market,” Mhlarhi said.

EMPLOYEE RETENTION

One of the conditions for the merger was that employees could not be retrenched or have their terms and conditions altered for a period of two years. However, given the understandable uncertainty that staff may feel in such circumstances, Newco has assured that employees’ jobs will be safe.

Mhlarhi explained that, in mergers where companies operated in overlapping geographies or product lines, synergies may lead to retrenchments, and competition authorities typically review such deals to protect workers, particularly in high-unemployment contexts.

However, he emphasised that this transaction was different.

“You’re not merging like-for-like businesses here. There are no overlapping geographies, no overlapping products. It’s actually just a financial investment. The business remains intact. There is no other business being injected or combined, and no duplicated roles. So that wasn’t an issue at all,” Mhlarhi said.

While the Competition Commission and some unions requested written assurances that there would be no merger-related retrenchments, the consortium agreed without hesitation.

“From a consortium point of view, that was no issue at all. The need to retrench doesn’t exist, and it is not something under consideration. Hence, it was agreed. We are very confident that there won’t be any retrenchments caused by the merger,” Mhlarhi said.

With the deal now unconditional and the consortium having control of 81.4% of the shares, the focus has shifted to staff engagement and morale.

Mhlarhi said Sewela was leading communications with employees in that regard, holding town halls and explaining the transaction, the road ahead and what it meant for them.

“The bulk of his focus now is communicating with staff, engaging openly, assuring them and sharing the road ahead. There is nothing to fear from the new shareholders or even from the company no longer being listed,” Mhlarhi assured.