A day after Murray & Roberts (M&R) announced plans by German minority shareholder ATONto acquire control of the group, an independent board has advised shareholders to reject the offer. In an announcement published on Sens on Tuesday afternoon the board, consisting of four M&R independent non-executive directors, called the ATON offer “opportunistic”, taking advantage of conditions ATON contributed to. The board consists of Suresh Kana (chairman), Ralph Havenstein, Alex Maditsi and Diane Radley.

ATON has indicated that it will post an offer circular to shareholders on April 5. The proposed cash offer of R15.00 per share materially undervalues M&R based on its prospects, the independent board advised. It added that ATON, with a 29.9% stake in M&R, in November last year voted down the continued on-market buy-back of the group’s shares. “This action, compounded by a period of low liquidity and declining valuations among the company’s legacy peer group in the listed construction sector, has precipitated a period of unprecedented weakness in the Murray & Roberts share price.” ATON is now taking advantage of the low share price to obtain control of M&R at the same price it paid for its shares, punting its premium to the current share price that was below R10.00 last week. Following the news of the proposed offer the share price reacted drastically and increased to R14.31 on Tuesday morning. After the announcement by the independent board, it dropped to R13.45.

Murray & Roberts

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SBG Securities analyst Marc Ter Mors supports this view. He told Moneyweb on Monday that SBG has valued M&R shares at R18 to R20 each since mid-2017. He bases this view on M&R’s ability to take advantage of increased capital spending in the mining industry and the expectation that the oil and gas industry, which is another focus area for M&R, will see a similar revival within the next year or two. The M&R independent board is sceptical of the possible combination of M&R’s underground mining business with ATON’s Redpath Mining. It says talks between the two groups about such a possibility stalled in 2015 when they failed to agree on the proposed transaction structure and relative value. It says M&R is currently performing well in this market with an improving order book, revenue and operating margin. Prospects are good, but new opportunities might be jeopardised by the ATON offer. The combination of these two businesses “presents limited strategic rationale”, the independent board says.

The board says it is unclear which sections of its business ATON would view as core and it is “firmly of the view that a breakup of the Murray & Roberts group would inevitably destroy value and negatively impact employment”. It questions how ATON will add capacity and facilitate skills transfer, specifically in the oil and gas business. The independent board expressed its concern regarding the potential dilution of M&R’s 54.7% B-BBEE shareholding and 18.9% ownership by black women and the impact of that on existing and future mining contracts in South Africa. It is also concerned about the impact of the proposed transaction on its 10 700 employees.

The chances are slim that ATON will succeed in acquiring a 100% shareholding, the independent board says. However the board is concerned that ATON will steadily increase its stake in the group – whether it obtains control or not. In the process it could introduce conflicts of interest between ATON and M&R, dilute B-BBEE shareholding and reduce liquidity of the shares and create protracted uncertainty as it tries from time to time to delist M&R. The independent board says it will not cooperate with ATON to implement the proposed offer and will not recommend that the M&R board enter into an implementation agreement with ATON. It has appointed BDO South Africa’s services as an independent expert to assess whether the ATON proposed offer is fair and reasonable, in accordance with the Companies Act.