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Buyout of Bell Equipment minorities looks doomed to fail

The plan by IA Bell, the Bell family holding company and largest shareholder in Bell Equipment, to acquire all the issued shares in the JSE-listed heavy equipment manufacturer it does not already own for R10 a share and delist the company appears doomed to fail.

In a joint announcement published on Friday, Bell Equipment and IA Bell made the long anticipated announcement that IA Bell has now given notice of its firm intention to make the offer via a scheme of arrangement.

However, IA Bell stuck to its initial indicative offer price of R10 a share despite previous criticism from minority shareholders that this significantly undervalues the company.

IA Bell has also failed so far to obtain irrevocable undertakings from any of the significant minority shareholders in Bell Equipment to support the proposed transaction.

Bell Equipment had a net asset value per share of R37.79 at end-June 2021, its most recent financial results.

Timing

The firm intention announcement was released at 4pm on Friday, with shares in Bell Equipment slumping by 13.23% or R1.97 during the day to close at R12.92 – but still 29% higher than the offer price.

Bell Equipment share price

Carson Mitchell, the managing member of Shipyard Capital Management LLC, who previously indicated it controlled 1.2 million shares in Bell Equipment, said on Saturday the R10 per share offer from the Bell family is “not serious”.

“They don’t have the votes to get a scheme of arrangement approved, they didn’t get commitments from any of the three institutional shareholders [Sanlam, Allan Gray, NinetyOne], and the offer price is below the price in the market,” said Mitchell.

“Putting this offer to the market in the middle of a trading session was reckless, and I wouldn’t be surprised to see an action brought against Bell’s board for allowing it.”

Read:

Open letter to Bell Equipment
Bell Equipment must seek a higher bid; open letter from a shareholder

Mitchell claimed that Bell Equipment chair Gary Bell affirmed at last year’s annual general meeting that the articulated dump truck (ADT) platform alone is worth at least R25 per share and the entire business is worth R36 per share or more “so it’s no surprise he’d like to buy out minorities as cheap as possible”.

He added that based on acquisitions in the space and on trading multiples of Bell’s peers, he estimates the business would fetch between R50 and R80 per share in a sale.

Better plan

“So rather than dissipate shareholder funds bringing unserious offers, the Bell board should retain bankers and run an open auction for the business,” Mitchell.

He  added that Bell Equipment makes ADTs, a sophisticated and niche vehicle that works in tandem with an excavator, and there are a half dozen global excavator manufacturers who lack an ADT.

“Bell is the only pureplay ADT maker of any note. An auction here would be well bid,” he said.

IA Bell now owns 70.1% of the issued share capital of Bell Equipment following its acquisition of 30 million Bell Equipment shares for R10 per share from John Deere Construction & Forestry Company effective from September 28, 2021.

In terms of the scheme of arrangement, only the owners of the 29.45% of the shares not already owned by IA Bell or certain shareholders who are related to or acquaintances of the founders of Bell Equipment will be able to vote on the proposed scheme.

Next steps

The joint announcement published on Friday said an independent board has been established for purposes of considering the IA Bell offer and will distribute a circular to shareholders in due course that will propose the scheme.

The independent board has appointed BDO Corporate Finance as the independent expert to express an opinion on whether the scheme consideration is fair and reasonable to eligible shareholders.

This opinion will be provided with the circular.

In terms of the R10 per share cash consideration, the joint announcement published on Friday said it represents:

  •  A premium of 118.3% to the closing price of Bell Equipment shares, and a 88.4% premium to the 30-day volume-weighted average traded price (VWAP) of Bell Equipment shares, on the JSE of R4.58 on September 4 2020, the last trading day prior to the date of release of the cautionary announcement regarding the non-binding memorandum of understanding that was entered into between IA Bell and John Deere prior to entering into the Deere sale agreement.

  • A premium of 8.7% to the closing price of Bell Equipment shares, and a 2.25% premium to the 30-day VWAP of Bell Equipment shares, on the JSE of R9.20 on March 9, 2021, the last trading day prior to the release of the non-binding expression of interest announcement of a possible transaction by IA Bell to acquire all the shares it does not already own.

  • A discount of 26.09% to the closing price of a Bell Equipment share on the JSE of R13.53 on October 5, 2021, the last trading day prior to the firm intention implementation agreement signature date.

All of the conditions of the scheme of arrangement must be fulfilled – or, where waiver or adjustment is permitted, this must be agreed – by March 1, 2022.

Delisting

The delisting of Bell Equipment, subject to the fulfilment of all the scheme conditions, including the approval of the scheme by eligible shareholders, will take place on March 15, 2022.

Moneyweb reported last month that the Financial Sector Conduct Authority (FSCA) has registered two investigations against Bell Equipment – one related to alleged insider trading and the other to whether the company published any false, misleading or deceptive statements about the company or its securities during July 2020.

Read: FSCA registers two investigations against Bell Equipment

This followed the FSCA confirming to Moneyweb that it had registered the two investigations after receiving “more than one complaint”.

It said the insider trading investigation relates to transactions in the securities of Bell Equipment Limited executed during the period from June 1 to September 30, 2020.

“Both investigations are ongoing, and we are not in a position to provide any further comment thereon at this point in time,” the FSCA said at the time.

Takeover complaint/s

A complaint or complaints were also apparently lodged earlier this year with the Takeover Regulation Panel (TRP) related to the conduct of Bell Equipment and Gary Bell, who is also the director of the family trust, in relation to the proposed acquisition of all the shares in Bell Equipment not owned by IA Bell.

However, TRP deputy executive director Zano Nduli stressed last month in response to a Moneyweb query that the TRP does not comment in the media regarding any investigations that may or may not have beeb referred to it.

“The work we do is not only potentially market sensitive, but often also governed by the need to maintain strict confidentiality,” he said.

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