The Finance Ghost: The lowdown on Bell Equipment and the trouble with SA's ports

15 Sep 2024

The failed bid to take Bell Equipment private is a cautionary tale about controlling shareholders allowing the voting class to become too small, while the private sector is being hurt by South Africa’s poor infrastructure.

This Bell ain’t ringing

In my investment banking days, there was still a tradition of ringing a bell to celebrate a deal being closed. The advisers on the Bell Equipment transaction are in the ironic situation of having no bell to ring whatsoever, as shareholders have voted down the scheme of arrangement that would have resulted in the controlling family taking the group private at R53 per share.

Considering that Bell could only manage headline earnings per share of 321 cents for the six months to June, down from 343 cents, that’s quite a brave decision. A total of 52% of voting shareholders saw the R53-per-share number and were ready to take it. Unfortunately for them, the scheme requires 75% approval to go through.

The problem for the controlling family is that the voting class of shareholders is small and dominated by a few sophisticated investors who have been trying to drive the offer higher. Although I agree that the first attempt to take the group private was opportunistic, I’m less convinced that this time round was a silly offer. Bell was trading at about R30 before this price was put on the table. The share price fell from R47 (a discount to the R53 offer price to account for deal risk) to R40 in one day after news of the failed offer broke.

This is a cautionary tale about controlling shareholders allowing the voting class to become too small. It can be a major problem for corporate actions.

The ports are selling us short

Our infrastructure has not been doing a great job at all of supporting the private sector. The issues with Transnet’s railway services are well documented and have been an Achilles heel of note for the mining sector. This week, we saw a few other examples of troubles being caused by the ports.

Perhaps the most irritating one is RFG Holdings, since it’s hard to lay any blame at the door of the company for what is happening. For the 11 months to August, group revenue only increased 1.4%. The regional (i.e. local) segment grew 5.3%, so the troubles were clearly in the international segment. Sales on the global stage fell 11.3%, a nasty outcome that ruined the decent local result.

Although RFG references softer global pricing, a detailed look at the numbers shows that international prices were only down 3.5%, which doesn’t explain the overall drop. That honour goes to volumes, which fell 10.4%. The main cause for this issue can be found at the Cape Town and Durban ports, and delays in exports.

There are few things more frustrating than our exports being hampered by infrastructure. There are issues at the ports on the import side as well, evidenced by Truworths. For the 52 weeks ended 30 June 2024, sales were only up 3.9%. Like we saw at RFG, there are major swings as soon as we dig deeper. The office business in the UK generated sales growth of 18.7%, measured in rand. Truworths Africa, which primarily comprises the South African business, experienced a sales decline of 3.9%.

I deliberately referenced RFG first, because I think the ports can clearly carry the blame there. Truworths is a bit messier in terms of pinpointing the culprit. Still, one of the problems was port-related issues in the supply chain. It imports 55% of apparel and hence you would expect some cushioning there, but the issue is that a lot of the locally procured products are also dependent on imports of raw materials in its supply chains.

At a time when office business in the UK increased its trading margin spectacularly from 18.3% to 34.6%, Truworths Africa reported a drop in that metric from 18.1% to 13.3%. Our infrastructure desperately needs to be improved, as we can’t afford to be hurting our private sector like this. DM

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R35.

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Business Maverick

This Bell ain’t ringing

The ports are selling us short