Saudi Zahid Group, along with Gulf Falcon Holding Ltd. and Entsha Ltd., has put forth an offer to purchase Barloworld Ltd., a key South African distributor of Caterpillar Inc. equipment. This bold move, valued at 22.8 billion rand ($1.3 billion), comes at a premium of 120 rand per share, marking a 30% increase from the closing price on December 10.
Zahid Group is banking on the booming construction sector in Africa, which experts predict will soar by 27% by 2029. Government investments in infrastructure, totaling 4.8 trillion rand, and a strengthening consumer market are driving this growth.
However, not everyone is on board. Some Barloworld shareholders, including Silchester International Investors holding 18%, have turned down the offer, deeming it insufficient.
Bold Investment Amidst Competitive African Market
Zahid Group’s ambition to acquire Barloworld stems from a four-year journey of increasing its stake, now holding 19%. They first approached Barloworld’s board in February 2024, signaling a long-term strategy rather than a sudden move.
Middle Eastern companies are keen to make their mark in Africa, especially competing with giants like China and France. For instance:
- Saudi ACWA Power has signed a memorandum to invest $10 billion in South Africa’s renewable energy sector over the next decade.
- Dubai-based DP World is managing assets of nine African ports, enhancing logistics and trade across the continent.
These strategic investments highlight the region’s commitment to tapping into Africa’s vast potential.
Financial Breakdown of the Acquisition
The proposed acquisition deal involves a total transaction value of 22.8 billion rand ($1.3 billion). Here’s a closer look at the financials:
| Aspect | Details |
|---|---|
| Total Value | 22.8 billion rand ($1.3 billion) |
| Share Price Offer | 120 rand per share |
| Premium Offered | 30% above December 10 closing price |
| Stake Acquired | 19% over four years |
| Rejected Stake | 18% by Silchester International Investors |
This significant investment underscores Zahid Group’s confidence in Barloworld’s potential and the broader African market.
Barloworld: A Pillar in Industrial Equipment
Barloworld is a prominent South African company specializing in industrial processing, distribution, and services. They are a trusted Caterpillar dealer across several African nations, including Zambia, Congo, Malawi, Angola, and South Africa. Their product range includes:
- Earthmoving Equipment
- Industrial Services
- Energy Systems for mining, construction, and energy sectors
With headquarters in Sandton, Barloworld plays a crucial role in supporting Africa’s infrastructure and industrial growth.
Why Some Shareholders Are Hesitant
Despite the attractive premium, some shareholders remain unconvinced. Silchester International Investors, holding an 18% stake, believes the offer undervalues Barloworld’s true potential. They argue that the company’s growth trajectory and strategic position in the market warrant a higher valuation.
This disagreement highlights the complexities of large-scale acquisitions, where differing valuations and strategic visions can lead to varied shareholder sentiments.
The Road Ahead for Zahid Group and Barloworld
If the acquisition goes through, Zahid Group will significantly bolster its presence in Africa’s industrial and construction sectors. This move aligns with their broader strategy of expanding into mining, oil and gas, energy, construction materials, and transport markets.
Looking forward, Zahid Group aims to leverage Barloworld’s established distribution network and expertise to capitalize on the anticipated construction boom. This acquisition could pave the way for more Middle Eastern investments in Africa, further enhancing economic ties and development across the continent.
