South African industrial giant gears up for takeover

Barloworld reported a decline in revenue and headline earnings for the financial year that ended 30 September, as the company entered into talks with a group of investors about buying the company. 

Once a South African industrial titan, the company has been negatively impacted by the country’s poor economic growth and declining mining output. 

Once a large conglomerate with many unrelated businesses, ranging at various times from mining, information technology and building materials to motor vehicles, it has unbundled many of its assets.

It now positions itself as an industrial brand management company. Barloworld has also been severely negatively impacted by the Russian-Ukraine war, with the company being investigated for possibly violating export controls. 

Barloworld remains the official Caterpillar dealer throughout Southern Africa. 

In the past twelve months, the company has come under increasing pressure. Its revenue declined by 7% to R41.9 billion, and headline earnings per share declined by 21%. 

Importantly, Barloworld has continued to derisk its business by reducing its complexity and exposure to multiple markets. 

It completed the derisking process of its UK pension fund in the last financial year and significantly reduced its debt by 20% to R7.9 billion. 

This follows on from a string of strategic disposals, with Barloworld selling its Spanish business in 2018 and exited its logistics business in 2020. 

It also exited its motor retail business, selling the unit to NMI Durban South Motors. In 2021, it announced plans that by 2022, it would have sold its logistics business as well as its leasing business and car rental business. 

The car rental business, which operated under the Avis brand in South Africa, is now listed separately on the JSE as Zeda. 

Barloworld’s increasingly simple business, with a strong position in Southern Africa has made it attractive to foreign companies looking to invest on the continent. 

Earlier this month, the company announced that it had entered into negotiations with a group of investors regarding the purchase of Barloworld. 

“Barloworld has entered into negotiations with a consortium of investors, acting through a newly established SPV, which, if concluded, will result in the consortium making an offer to acquire all of the issued ordinary shares in Barloworld,” it said in a statement. 

The investors are being led by the Saudi group Zahid, a distributor of heavy equipment machinery in the Middle Eastern nation. 

It has been buying shares of Barloworld four years ago. One of its units, Zahid Tractor and Heavy Machinery owns 18.9% of the South African company.

A deal may see Barloworld being taken private in a similar fashion to how Imperial Logistics was delisted after it was bought by DP World.