M&R faces scrap over Aveng bid

Engineering giant on collision course with its largest shareholder over mooted purchase

● Murray & Roberts could be in for a tussle if it is serious about buying Aveng after its biggest shareholder, Aton, has said it will not support the deal.

Aton, which itself is planning to buy Murray & Roberts, in which it already has a 40% stake, said: “There is no basis for Aton to support M&R’s proposed acquisition of Aveng. The announcement reflects an underdeveloped and rushed outline of a potential transaction with a speculative rationale.”

In an e-mailed response to questions, Aton added that it would continue to file an offer with the Competition Commission to acquire M&R before the May 24 deadline.

The company believed that the proposed deal of M&R to acquire Aveng was intended to “frustrate” its compelling proposition to M&R, and that the merger did not fit the construction firm’s strategy.

Murray & Roberts, South Africa’s secondbiggest construction and engineering company by market capitalisation, said on Friday it would offer R1-billion to buy Aveng but on condition that Aveng raised at least R300 million through a share sale. But Aveng has said it will raise R500-million.

Board members of both companies have agreed to the proposal but M&R still has to make a formal offer subject to the preconditions of the merger.

M&R said it still had to engage with Aton, a German investment company which in March put in an offer to take control of M&R for R6.7-billion. Aton started buying Murray & Roberts shares early last year and has steadily been building up its stake — it is already its biggest shareholder.

But Murray & Roberts’ board rejected Aton’s offer and advised shareholders to vote against it, saying the R15 a share offer undervalued the group. The Public Investment Corporation (PIC) also regarded Aton’s offer as undervaluing Murray & Roberts.

Deon Botha, head of corporate affairs at the PIC, said it was aware of the deal but not in a position to express a view until “the making of a formal offer by Murray & Roberts to Aveng which is subject to the fulfilment or waiver of the preconditions”.

The PIC holds 21.42% of Murray & Roberts and 2.96% of Aveng.

Both Murray & Roberts and Aveng will have to formally refer the proposal to shareholders for consideration.

Andrew Joannou, a portfolio manager at Investec Asset Management, which owns 12% of Aveng on behalf of its clients, said conceptually it was in favour of the M&R/Aveng deal since it combined two complementary businesses.

“While we believe the deal undervalues Aveng’s assets, we view the share swap as a good way for our clients to still participate in the value unlock,” said Joannou.

The multibillion-rand construction sector has been under considerable strain as South Africa’s economy struggled and as the government cut back on infrastructure spend.

The sector has also been dogged by the legacy of the 2010 Fifa World Cup, ahead of which construction companies colluded on the building of stadiums.

Both Murray & Roberts and Aveng paid penalties.

An analyst, who could not be named because of company policy, said: “If Aton had their way they would try everything they can to try to block this deal. I wouldn’t see it in their interest for it to go through.”

The move by Murray & Roberts could be seen as a defensive play to block the takeover bid by Aton, he said.

M&R needs 50% plus 1 of shareholders to approve the merger, while Aveng needs 75% of shareholders to approve the deal.

The proposed deal would benefit Aveng more than M&R as it would ease Aveng’s liquidity problems.

According to M&R investor and media exexecutive Ed Jardim, shareholders will have two votes this year on two proposals.

The first vote, which is expected in June, will be a vote of 50 plus 1, which will be to say that M&R is not frustrating the Aton deal. If M&R secures the 50 plus 1 for this vote, shareholders will then vote on the Aveng deal.

M&R does not need 75% of shareholders to approve the deal, unlike Aveng, as it will not be issuing more than 30% of its shares, therefore not diluting its share value.

The announcement reflects an underdeveloped outline of a potential transaction

Aton In a statement on M&R bid for Aveng