Frustrated Implats mulls a new path
As deal hangs in balance, Implats ponders what to do with cash it would have spent on RBPlat
Shareholders of Impala Platinum (Implats) must be considering the possibility that their firm’s takeover offer for Royal Bafokeng Platinum (RBPlat), formally under way since November 2021, will fail.
Speaking at the interim results presentation this month about its bid for RBPlat, Implats CEO Nico Muller didn’t hold back. “Though strategically important to the company, it cannot hang its future on the outcome of a process where it has no control,” he said, adding that a time was coming “where the company has no choice but to consider alternative directions. That may mean a different investment and different growth path.”
Even by competitive M&A standards, Implats’s bid for RBPlat has taken an extraordinarily long time. Muller said the success of its offer turns on two factors, both of which unsurprisingly have the government at their centre.
One is the reticence of the Public Investment Corp (PIC) to back its offer. The second lies with the department of trade, industry & competition’s Takeover Regulation Panel (TRP), which is unable to grant Implats’s offer its final regulatory approval.
Implats’s offer became mandatory in January 2022. Since then, it has extended the long-stop date on the transaction about seven times, the latest to the end of this month.
“There’s no doubt shareholders are getting tired with this and the time it’s taking,” says an analyst who asked not to be named. “Another complexity to throw into the mix is that the offer for RBPlat was made on the assumption of a certain basket price for platinum group metals [PGMs]. The weakness of the rand has helped but the basket price is down quite a lot since last year.”
Prices for platinum and palladium over the past 12 months are 13.7% and 51% lower respectively, while rhodium which made up the largest portion of some company PGM revenue profits in 2021
is 55% weaker. The rand has lost 18.5% against the dollar over the same period.
Muller said the company is unwilling to extend the RBPlat offer much further, even with just under 41% of RBPlat in the bag. (It requires about 42% for unassailable control.) Well, maybe one more time, he conceded: if the PIC decides to vote its 9.9% block of shares in RBPlat in favour of Implats, the offer will need to stay open to accommodate it.
Up to now, the PIC has declined to deal on RBPlat, though it stands to make a healthy profit from selling its stake. Since Implats’s R150 a share offer became mandatory, RBPlat has gained 104% in round terms. What’s holding the PIC back is the possibility that Northam Platinum, which opportunistically bought a 38% stake in
RBPlat, will make a rival offer. And that’s how it looked when, on November 9, after months of promises, it finally announced an intention to pay R172.70 a share for RBPlat.
However, a circular which was due to be published on January 7 detailing the offer, as well as setting down dates for a shareholder vote, has not yet appeared. This has raised speculation that Northam is struggling to get investors past first base. That may spur on the PIC, which said in November it would hold its position, citing socioeconomic effects of deciding one way or the other. Muller expects the PIC to review its position before the end of this month.
Even with 51% in RBPlat, Muller cited legal advice which says objections placed with the TRP by Northam could see its RBPlat takeover plans frustrated “for years”. This relates to the granting of a compliance certificate from the TRP — the only regulatory hurdle yet to be satisfied by
Implats. What’s stopping the TRP making the award is an objection in November by Northam to an alleged unlawful share issuance, as well as contractual agreements, between RBPlat and its COO, Neil Carr, and CEO, Steve Phiri, last year.
If this objection is overcome, it could be appealed by Northam in the high court. This, in turn, could be followed by a fresh objection. Unlike the UK’s takeover code, which calls on potential bidders to “put up or shut up” within 28 days of a takeover intention being made public, South African takeover regulations allow for a contested takeover to be litigated; in other words, there could be a long, long cycle of objection and appeal.
“It is for me why we are not an attractive investment destination, because we are not able to conclude a transaction in South Africa,” said Muller. “It is impossible for regulatory bodies to make a conclusion, and that’s not good for anyone: not for us, shareholders or RBPlat.”
RBPlat said in February it would report a decline in basic interim earnings for the 12 months ended December of nearly 51%. In the words of Phiri, the takeover battle “brings instability and consternation”.
Of course, Northam could drop its objections with the TRP, decide not to press on with its offer, and settle into a joint venture with Implats in RBPlat. For months, this seemed the most likely outcome, and it could yet happen.
“I don’t think Northam would have any objection about a joint venture,” says René Hochreiter, an analyst for Noah Capital. He believes Implats may be playing a game of poker with the PIC because “it definitely needs Rustenburg [RBPlat’s assets]”.
But Muller has fears about a joint venture. He is concerned about Implats’s ability to “derive synergies” if Northam were to continue to oppose his company as it has in the fight over RBPlat, he said at the results presentation.
Implats produced 1.18-million ounces in PGMs, along with gold and nickel, in the six months ended December. Of this, however, 597,600oz were mined at its Rustenburg operations, and some of the Rustenburg shafts are old. Because Impala Rustenburg employs 40,000 people, one benefit of buying RBPlat would be to extend mining into its adjacent resources. This would help Implats retain thousands of jobs.
“If we can’t secure a long-term sustainable operating position for Rustenburg it would lead to a harvesting situation which I think, from an economic point of view, will be fantastic,” said Muller. “But from a public interest point of view it