Aveng hobbled by M&R deal pull-out

Murray & Roberts’s decision to abandon its ‘rescue bid’ puts future of loss-making construction group in question

The outlook for heavily indebted, loss-making construction group Aveng is grim, given engineering group Murray & Roberts’s (M&R’s) decision to abandon its controversial bid to buy the 125-yearold company.

The outlook for heavily indebted, loss-making construction group Aveng is grim, given engineering group Murray & Roberts’s (M&R’s) decision to abandon its controversial bid to buy the 125year-old company.

This leaves Aveng in a perilous position. In the six months ended December 31 2017 it reported a loss of 87.4c a share and debt of R3.25bn. The group has struggled to sell assets identified as noncore. Its plans for a R1.8bn rights offer were scaled back to R500m on expectations that M&R was set to become a major shareholder. Proceeds from the recent rights offer will be used for the early redemption of R2bn of convertible bonds due to mature in 2019.

On Wednesday the Aveng board said it would continue with the planned early bond redemption as soon as practically possible. “Deleveraging the company to reduce its debt burden and to improve liquidity is critical to unlock value for Aveng shareholders,” said the board.

Although the company has failed to find buyers for its noncore businesses, it announced in early August that it had reached agreement to sell R250m of properties. Proceeds from the sale would be used to reduce overall debt.

M&R had issued a statement advising shareholders of a potential transaction with Aveng on May 18, almost two months after German engineering group Aton had announced it intended to make an offer to M&R shareholders. Aton, which has made a mandatory offer of R17 a share and has built up a 44% stake in M&R, is strongly opposed to any deal between M&R and Aveng.

Deon Botha of the Public Investment Corporation, the second-largest shareholder, has rejected the Aton offer saying it “materially undervalues this successful engineering, construction and mining company based on its prospects”.

Despite the loss of what was described as a rescue bid by M&R, the Aveng share price closed unchanged on Wednesday at its record low of 8c. One analyst, who spoke off the record, said most investors had given up on prospects for the proposed tie-up with M&R after Aton announced last month that it had acquired a 25.4% stake in Aveng. This stake was sufficient to ensure that the transaction did not get the 75% backing needed from Aveng shareholders.

On July 31, the Takeover Special Committee (TSC), which adjudicates appeals of rulings by the Takeover Regulation Panel, dealt a killer blow to the deal when it overturned the panel’s decision and ruled that M&R was prohibited from proceeding with it.

On Wednesday the M&R board said it was disappointed with the TSC decision but had “resolved not to take the … decision on review at this time and continues to reserve its rights in this regard”. The board said that despite its decision to withdraw from the Aveng transaction it believed there was a compelling “strategic rationale” for the tieup with Aveng. “The board will continue to evaluate the possibility of revisiting the potential in future.”

TSC chairman Chris Ewing said in his ruling there was no legal imperative for the Aveng transaction to be continued at present. “Once the mandatory offer [by Aton for M&R] has run its course, it is possible for M&R to continue with the potential Aveng transaction should it so desire,” said Ewing.