Saudi Arabia’s Zahid Group, through its Gulf Falcon Holding Ltd. and local partner Entsha Ltd., has made a $1.3 billion bid to acquire Barloworld Ltd., a leading South African construction equipment company. The proposed deal values the Johannesburg-based company at approximately 22.8 billion rand, offering 120 rand per share, which represents a 30% premium over the company’s closing price on Tuesday.

The offer, which includes Barloworld’s declared dividend of 3.10 rand per share, positions Zahid Group to strengthen its footprint in Africa, a continent that is poised for significant growth in the construction and infrastructure sectors.

Details of the Offer

The offer from Zahid Group and its partners comes as Africa experiences a surge in construction activity, driven by government infrastructure investments and a growing consumer market. The construction industry in Africa is projected to grow by nearly 27% by 2029, according to Mordor Intelligence, fueled by large-scale infrastructure projects and urban development initiatives.

Barloworld, a distributor for Caterpillar Inc. in Africa, has long been a critical player in the continent’s construction and mining industries. The company’s operations span several African nations, including South Africa, Zambia, the Democratic Republic of Congo, Malawi, and Angola, where it supplies heavy machinery and equipment essential for infrastructure development.

Saudi Arabia’s Zahid Group, which owns 19% of Barloworld’s shares, began acquiring stock in the company four years ago, anticipating the growing potential of Africa’s construction sector. The group approached Barloworld’s board earlier this year, following a period of declining share prices for the South African firm.

Challenges to the Deal

Despite the premium offered, some major shareholders, including Silchester International Investors, which controls nearly 18% of Barloworld’s stock, have rejected the 120 rand per share bid as too low. Silchester has publicly stated that it will not support the deal unless the offer is raised to at least 130 rand per share.

“A full privatization of Barloworld is unlikely to succeed without the support of Barloworld’s primary shareholders,” Silchester noted. The investment firm also pledged to use all available rights to protect its clients’ financial interests, signaling a potential stalemate in the negotiations.

Barloworld’s Recent Performance

Barloworld has shown signs of recovery after facing challenges from the COVID-19 pandemic and the resultant economic slowdown. The company’s stock has increased by 35% this year, driven by improved market conditions and strategic moves to reposition itself in the construction and mining industries.

However, Barloworld has also faced scrutiny for its operations in Russia. The company has been investigating potential export violations in its Russian division, adding an element of complexity to its business landscape.

Zahid’s Strategic Bet on Africa

The acquisition aligns with a broader trend of Middle Eastern companies increasing their investments in Africa. These investments are part of efforts to diversify their economies and gain influence on the continent, which is rich in resources and offers untapped growth potential.

Saudi companies, in particular, have been active in Africa in recent years. ACWA Power, a Riyadh-based firm, recently announced plans to invest $10 billion in South Africa’s renewable energy sector over the next decade. Similarly, Dubai-based DP World operates nine ports across Africa, facilitating trade and logistics.

Zahid Group’s interest in Barloworld reflects its confidence in the future of Africa’s construction sector. With governments across the continent committing to large-scale infrastructure projects, including roads, bridges, and energy facilities, the demand for heavy machinery and construction equipment is expected to surge.

South African President Cyril Ramaphosa has emphasized the importance of infrastructure investment for economic growth. His administration has identified infrastructure development as a cornerstone of its economic recovery strategy, with plans to mobilize as much as 4.8 trillion rand in investments from both public and private sectors.

Implications of the Deal

If the deal is successful, Barloworld would be delisted from the Johannesburg Stock Exchange, marking a significant shift in its ownership and operational strategy. The acquisition would also enable Zahid Group to consolidate its presence in Africa, leveraging Barloworld’s established network and expertise in heavy machinery distribution.

For Barloworld, the acquisition could bring new opportunities for growth and investment. Zahid’s backing would provide the company with access to additional resources and markets, enhancing its ability to compete in an increasingly dynamic industry.

However, the deal’s success hinges on the approval of Barloworld’s shareholders, many of whom are demanding a higher offer. The ongoing negotiations highlight the complexities of mergers and acquisitions, particularly in markets where shareholder activism is on the rise.

A Broader Context of Middle Eastern Investments in Africa

Zahid Group’s bid for Barloworld is part of a broader wave of Middle Eastern investments in Africa. Gulf countries, including Saudi Arabia and the UAE, have been actively seeking opportunities on the continent, which is seen as a key growth region for the coming decades.

These investments span various sectors, including energy, logistics, and technology. For instance, the $10 billion renewable energy investment by ACWA Power underscores the growing importance of sustainable development in Africa. Similarly, DP World’s operations in African ports highlight the region’s role as a critical hub for global trade.

This growing interest reflects Africa’s strategic importance in the global economy. With its young population, abundant natural resources, and increasing urbanization, the continent offers immense opportunities for growth and development.

Looking Ahead

The proposed acquisition of Barloworld by Zahid Group underscores the shifting dynamics of global business. As Middle Eastern companies continue to expand their presence in Africa, they are reshaping the competitive landscape and fostering new opportunities for collaboration and growth.

For Barloworld, the deal represents both a challenge and an opportunity. While the company must navigate shareholder concerns and regulatory hurdles, it also stands to benefit from Zahid’s expertise and resources.

As negotiations continue, the outcome of this deal will likely have far-reaching implications for both the African construction industry and the broader trend of Middle Eastern investments in the region. Whether or not the acquisition succeeds, it is clear that Africa remains a focal point for global business, offering unparalleled opportunities for innovation, growth, and partnership.

The coming weeks will be critical in determining the fate of this landmark deal, as stakeholders work to find a resolution that aligns with their interests and sets the stage for the future of Barloworld and Zahid Group’s operations in Africa.

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Photo source: Google

By: Montel Kamau

Serrari Financial Analyst

12th December, 2024