Engineering and construction group Murray & Roberts (M&R) announced on Tuesday that it had entered into a R314-million agreement to sell eight of its infrastructure and building divisions to a black-empowered entity known as Firefly Investments, led by the Southern Palace Group.
The transaction is subject to several conditions, including a written undertaking from the Construction Industry Development Board indicating that it will not pursue civil claims arising from a 2013 collusion settlement. Competition authority and shareholder approvals also remain outstanding, but the participants are optimistic that the deal will be consummated during the first few months of 2017.
The eight divisions, collectedly referred to as MRIB, have been identified as M&R Buildings Gauteng, M&R Western Cape, M&R Infrastructure, M&R Botswana, M&R Plant, M&R Developments, Concor Opencast Mining, Dynamic Concrete Solutions (Namibia) and M&R’s share in the Medupi Civils Joint Venture.
M&R’s interests in the Bombela Concession Company, the Bombela Civils Joint Venture, Bombela Operating Company and M&R Middle East have been excluded, along with liabilities for certain contracts, including those relating to the Grayston Pedestrian Bridge temporary works collapse, as well as the opencast mining contract with Lonmin.
Some of the businesses being sold have been in operation for more than a century and all management and staff employed at the eight units will move across to the new entity, which will be led by MRIB CEO Jerome Govender. The new entity is expected to have an immediate order book of R4-billion, and employ up to 2 000 people.
JSE-listed M&R, meanwhile, which is focusing on the natural resource markets of underground mining, water, power, oil and gas, has a backlog of around R30-billion and employs around 16 000 people at operations in South Africa, Australia and North America.
At the closing date of the transaction, the divisions will be bundled into Concor and implemented by way of M&R disposing of the entire issued ordinary share capital of Concor, together with all claims held against Concor, to Firefly Investments.
Besides Southern Palace Group of Companies, which is a wholly black-owned and managed industrial holding company, Firefly Investments represents a consortium that includes certain members of current MRIB management and the Government Employees Pension Fund (GEPF), which is administered by the Public Investment Corporation (PIC).
The GEPF currently holds 15.24% in M&R and because the PIC will also hold 25% of Firefly Investments, the deal has been deemed a related-party transaction by the JSE. For this reason, the PIC is disqualified from voting for the transaction, while the M&R board has also had to appoint BDO Corporate Finance to offer independent advice to shareholders on the fairness of the transaction.
The deal follows M&R’s participation in an agreement with government, unveiled on October 11, when 15 construction groups made various commitments, including a promise to ensure “meaningful” transformation in return for a settlement of potential claims arising from previous transgressions of South Africa’s competition laws.
In 2013, several construction groups were collectively fined R1.46-billion, with M&R’s portion of the penalty set at R309-million. However, there have been subsequent claims made by the South African National Roads Agency and metropolitan councils.
Should the deal be consummated it will lead to the creation of a black-owned construction group with capabilities in infrastructure, such as roads, earthworks and civils, opencast mining, power and commercial and residential buildings.
Southern Palace CEO Lucas Tseki described the acquisition as a key step in its strategy of moving beyond investment holding into operations.
“We are delighted to have concluded this transaction which sees us acquiring a strong Southern African asset with vast capabilities and a proud heritage of 114 years. We intend to build upon this impressive track record to the benefit of all of our key stakeholders,” Tseki said in a statement.
M&R, meanwhile, has been signalling its intention to exit the general building and infrastructure markets in order to focus its activities on selected natural resource sectors.
CEO Henry Laas noted earlier in the year that underground mining and oil and gas already contribute some 77% of revenue and 96% of earnings. M&R reported revenue from continuing operations of R26-billion during the year to June 30, 2016, and attributable earnings of R753-million.
“This transaction is about M&R exiting a specific market sector,” Laas asserts, stressing that the group remains committed to South Africa and the rest of Africa, where it will continue to support private and public sector clients in its chosen market sectors.
“It’s the Group’s vision, by 2025, to be a leading multinational group, which applies its project lifecycle capabilities to optimise client’s fixed capital investment in the global natural resources markets.”
He reports that the proceeds from the sale will be used to reduce debt.
In late October, M&R announced the sale of steel fabrication subsidiary Genrec to Nisela Capital for R185-million.
Genrec was the last remaining manufacturing business in the group’s portfolio of businesses. That transaction is also subject to certain conditions and regulatory approvals.