Barloworld CEO accused of conflict in potential buyout by Saudi-led consortium

Barloworld CEO Dominic Sewela has been accused of a conflict of interests over the involvement of a trust for his and his family’s benefit in a consortium led by Saudi Arabia’s Zahid Group, which is considering making a buyout offer for the JSE-listed group.

There is “a massive conflict of interests” and Sewela should “be suspended pending a disciplinary hearing” said one analyst.

“It’s preposterous that the first cautionary has been out for seven months and he [Sewela] has clearly had dealings with these guys and only now does it sound like an independent committee has been formed,” he added.

“The conflict of interest is impalpable at the moment.”

The analyst believes Sewela should have immediately recused himself from any negotiations and approached the board to inform it that he had been approached to be the broad-based black economic empowerment (B-BBEE) party in the transaction and is now conflicted but is interested in the opportunity and would like to pursue it.

“Now these negotiations have been running for six or seven months where he [Sewela] has clearly positioned himself as the gatekeeper of this deal. He is the key that unlocks it.

“You cannot undo six or seven months of positioning while Barloworld has been under cautionary by just establishing a new independent board to consider and negotiate with the consortium about the potential offer,” he said.

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“How many meetings has he [Sewela] had with them, how many letters has he interchanged with them, how many hours of negotiation has he already had on this deal?

“It looks like Sewela has been negotiating for these people for months and months since the cautionary has been out and now all of a sudden he has perfected a deal and he is handing it over to the independent board to dot the Is and cross the Ts.

“The second they [Zahid Group] mentioned they wanted him [Sewela] to be part of the transaction, he should have told them they have now made him conflicted, stopped the conversation and brought in the board to take it forward.

“They are trying to steal this company. Good luck to the shareholders because they sit and do nothing about it.

“If we had shares, we would be calling foul and telling the whole board to resign and start again.

“It doesn’t take a corporate governance expert to realise that this guy [Sewela] has massively overreached here and should be suspended from all operations in Barloworld until they unwind and decide how far he has gone, what he has promised and whether he actually should be part of this deal at all,” he said.

The analyst stressed that the proposed transaction should be about what is best for Barloworld shareholders and not for Sewela.

He further questioned:

• Why, after six months, the Barloworld board was not aware of Sewela’s involvement in the proposed offer because there had clearly been interaction between the parties; and
• What other actions have been put in place by the Barloworld board to open up this process to ensure that shareholders extract the maximum value from any potential bid or bidder because the proposed offer has been inappropriately handled and it has not been “a fair and honest” process?

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Details of ‘the new governance protocols’?

A second analyst, who also did not want to be named, said in a conflict of interest situation, the key question is what are the new governance protocols that Sewela is operating under within Barloworld.

The analyst said he asked Barloworld to explain how the group is being run differently to the way it was previously run, but Barloworld’s response was that it is part of the cautionary announcement and therefore they cannot disclose it.

“I disagreed with this profusely. How the business is being run today is surely public knowledge for all shareholders,” he said.

“The senior oke [CEO] is in the position where he obviously wants the price to come down because he is part of the consortium and wants to get it cheaper but that is not in the best interests of shareholders, and the CEO should really be in the position where he is supporting a higher share price.”

The analyst added that the potential transaction appears to be a “mini coup” and questioned if Sewela should not be stepping down now because of the conflict of interests, particularly because if the deal is not finalised, Sewela “will have to step down anyway”.

He said there are a number of other valid questions about the proposed transaction, including:

• Why it took the Barloworld board six months before it disclosed Sewela’s involvement in the proposed transaction;
• Why an independent board was not established immediately when the first cautionary was issued instead of only six or seven months later; and
• Whether Sewela’s family trust could be considered a B-BBEE entity.

A third analyst, who also did not want to be named, stressed that if there is a conflict of interests, the person implicated must disclose it and recuse themselves from any decision-making.

“The person who should answer as to the board’s actions is the company secretary. The company secretary is there as the guardian to the board doing the right thing,” he said.

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PIC’s reaction?

Moneyweb emailed a number of questions to the Public Investment Corporation (PIC), which has an 18.1% stake in Barloworld and is its second-largest shareholder, related to how Barloworld has managed the potential offer and whether the PIC has any concerns about the process.

The PIC issued a statement instead of responding directly to these questions.

“The PIC engages investee companies and boards directly on matters relating to its investments in them.

“The board of Barloworld has a fiduciary duty to timeously inform all shareholders of any potential transaction, merger or acquisition that may impact the company.

“As part of its responsibility, the board must also ensure that appropriate corporate governance standards are maintained.

“The board of Barloworld must always act in the best interest of shareholders,” it said.

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Barloworld’s response

Moneyweb emailed a number of questions to Barloworld, including:

• The date on which the consortium made the initial approach to Barloworld about the potential buyout;
• To whom this initial approach was made;
• The date on which the independent board was constituted;
• Further details about the “clear and enhanced governance protocols” introduced by the independent board to address any concerns resulting from Sewela’s involvement in the consortium and the proposed transaction;
• The date on which these protocols were introduced;
• Whether there were any engagements between Sewela and the consortium prior to the establishment of the independent board; and
• Why it took Barloworld seven months from the first cautionary announcement on 15 April 2024 and the cautionary announcement published on 15 November 2024 to provide any details about the parties involved in this proposed transaction, including the involvement of Sewela.

Michelle Strauss, a Barloworld spokesperson, said that in line with applicable regulatory requirements, the group is unable to provide further information outside of what was published in the further cautionary announcement on 15 November 2024 and paraphrased sections of that cautionary announcement as the group’s response.

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Timeline

Timeline of Barloworld’s announcements on the proposed transaction:

• Published its first cautionary announcement about a potential offer for the group on 15 April 2024 but provided no details about the potential transaction or the parties involved;
• Republished the identical cautionary announcement on 27 May 2024, 10 July 2024, 22 August 2024 and 4 October 2024, which still provided no additional information about the potential offer;
• On 15 November 2024 advised shareholders and investors in a cautionary announcement that it has entered into negotiations with a consortium of investors, acting through a newly established special purpose vehicle, which if concluded will result in the consortium making an offer to acquire all of the issued ordinary shares in Barloworld, other than treasury shares and shares held by members of the consortium and persons acting in concert with members of the consortium, which currently was only the Barloworld Empowerment Foundation;
• Confirmed the consortium comprises Entsha and Gulf Falcon Holding Limited, a wholly-owned subsidiary of the Zahid Group, a multidisciplinary conglomerate headquartered in the Kingdom of Saudi Arabia and an effective 18.9% shareholder in Barloworld;
• Mentioned for the first time in the cautionary announcement published on 15 November 2024 that Entsha, a newly incorporated company that is ultimately owned by The Katlego Le Masego Trust, an inter vivos trust established for the benefit of Sewela and his family, is involved in the potential transaction; and
• Mentioned for the first time in the same cautionary announcement that the Barloworld board of directors has constituted an independent board to consider the proposed transaction and engage with the consortium.

The 15 November 2024 cautionary announcement further stated that given the nature of the consortium members and the involvement of Sewela, and in line with its statutory and fiduciary duties, the independent board “introduced clear and enhanced governance protocols to address any concerns that may result from the CEO’s involvement in the consortium and the proposed transaction”.

“These protocols have served to ensure that the business continues to be run efficiently and in the best interests of all shareholders and the company whilst mitigating any potential conflicts between the proposed transaction and the day-to-day running of the company’s operations,” it said.

“The independent board is confident that sufficient safeguards have been put in place to ensure that the company is managed with minimal disruption.

“Shareholders are advised that engagement between the consortium and the independent board in respect of the proposed transaction is ongoing.”

This article was republished from Moneyweb. Read the original here.