M&R anticipates new offer from Aton before the end of 2020

17-02-2020
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Moneyweb
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Says its 43.8% shareholding in the group is ‘problematic’.

Murray & Roberts (M&R) group chief executive Henry Laas says the 43.8% shareholding in the group held by German family-owned holding company Aton is problematic for M&R but believes Aton will launch another bid for M&R by the end of this year.

Laas also confirmed that M&R has grown its order book to more than R50 billion and the group has to get itself ready for acquisitions again in 2021 because it is the only way to grow the business.

M&R, a JSE-listed engineering and construction group, will early next month release its interim financial results for the six months to December.

Laas said:

The water and power platform made a small loss last year but was marginally profitable in the interim period; The mining platform continues to do well, is currently the core of the group, and has maintained earnings; and The oil and gas platform is not expected to make a loss this year after reporting a R98 million loss last year. Aton in September last year decided against renewing its hostile bid for M&R, resulting in its offer lapsing.

This followed the Competition Commission recommending that the Competition Tribunal prohibit the proposed transaction because of its impact on competition.

Laas said Aton’s 43.8% shareholding in M&R is problematic because there is now very low liquidity in M&R’s shares.

The Public Investment Corporation (PIC) holds a further about 21% of M&R’s shareholding and a few institutional shareholders about 4% while M&R also holds shares in trust that do not trade.

Market enthusiasm

Laas said there is very little free float on the market. The company has been approached by investors interested in investing in the group who indicated that there are no shares available.

“They don’t want to buy 5 000 shares. They want to buy a block of three million or four million shares,” he said.

Laas confirmed that Aton has not asked for any representation on M&R’s board despite its large shareholding and has not engaged with M&R since the offer lapsed.

Despite Aton having negative control of M&R in that it can block any special resolutions, Laas said it has abstained from voting on any of M&R resolutions and has also not communicated to the market what its long term intentions are with regards to its investment in M&R.

Read: Formerly hostile suitor unclear about its M&R intentions

Laas said the only reason he could think of for Aton’s behaviour and attitude is that the company is working on an alternative plan to obtain 100% of M&R’s shareholding but cannot in terms of JSE listing requirements bring a new offer within a 12-month period.

“They don’t want to become trapped with inside information which will make it difficult for them to launch an offer,” he said.

“They were so committed to doing the deal the first time that I can’t see them just backing away.”

Aton said that after its offer for M&R lapsed it intended to remain invested in and support M&R as a significant shareholder but declined via its South African communications company to answer questions related to its future intentions with its investment.

Acquisitions

Laas said future acquisitions by M&R in 2021 will focus on the US market but stressed this does not mean that the group will not be doing any acquisitions in South Africa.

He said the mining platform in South Africa has focused on underground mining but they are thinking about the possibility of also providing open cast mining services because there are very few companies left providing this service.

Laas said the mining business has an order book of about R20 billion, the oil and gas an order book of about R30 billion and there is something in power and water to lift the total order book slightly above R50 billion.

But he added that the mining platform is at a point where they see little opportunity for organic growth because they believe the commodity cycle has plateaued.

“We are replenishing the order book as we build projects but it’s going to be difficult for us to grow the order book in mining. We will maintain the order book and continue to do well for a number of years,” he said.

There is however a platinum mine project in Zimbabwe the group is very keen to pursue.

Laas said it could be worth between R5 billion and R6 billion as a single contract and is one of the biggest single biggest prospects for the business at this stage.

“We should know if we are successful or not when we release our full-year results,” he said.

Although the oil and gas business has a secured order book of R30 billion, Laas said the dilemma is that it is a multi-year order book and the annual earnings are insufficient to sustain their cost structure to “put earnings on the bottom line”.

“But it’s providing us with a very nice base into the future. I don’t think the oil and gas business will lose money this year but it will only make a small contribution to earnings. But next year should be a lot better.”

US expectations

Laas said that five years from now the group’s oil and gas business in the US will be the largest contributor in that platform and make a bigger contribution than Australia.

He said although the power and water business was marginally profitable in the first half of this financial year, it had to go through massive cost-cutting initiatives.

Laas said M&R plans to hold onto this business until opportunities present themselves – as long as it does not cost the group too much.

He said there is a big opportunity for this business in Mozambique and the water infrastructure is so bad that it must get to a point that investment starts flowing.

Shares in M&R declined 0.45% on Friday to close at R10.95.