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It appears that Bell Equipment’s 21-year relationship with US equipment maker John Deere will unravel with Monday’s announcement that the two companies are in talks about a possible stock transaction.
The announcement came minutes before the release of interim results, which revealed a sharp deterioration in Bell’s dismal five-year record.
The announcement that IA Bell, which owns 39% of Bell Equipment, has made a tentative offer to buy 31.4% of Bell Equipment from Deere, has sparked speculation that there are plans to withdraw the company from listing on a later stage.
A corporate attorney explained that because IA Bell owns more than 35%, it will not be required to make a mandatory offer to minority shareholders if it buys Deere’s stake. And in the event that Bell Equipment is delisted, minority shareholders will not have any appraisal rights.
Low performance
With more than 70% of the shares, IA Bell could implement a delisting without the approval of the remaining shareholders.
This will be bad news for long-suffering minority shareholders who have watched as underperforming management failed to generate adequate returns from Bell Equipment’s world-class garbage trucks.
The decision to buy John Deere’s equity stake comes amid continued criticism from minority shareholders about management’s prolonged performance and speculation that a Chinese company has made a takeover offer. That speculation, published in Financial Mail last month, was denied by management.
Monday’s announcement of a possible deal sent the stock price soaring almost 30% to close at R5.95, its highest level since early August. Although an improvement from the low of R2.50 to which the stock price plunged before Covid, Monday’s close is significantly below the net asset value (NAV) of R38.5 per share and also below R20. to which was negotiated in 2014..
Before a contentious annual general meeting in July, a US-based investor Kerem Aksoy, chief investment officer at Glacier Pass Partners, told Moneyweb that Bell’s engineering prowess was overwhelmed by investment policies and The company’s misallocation of capital, resulting in the net destruction of the shareholder. value. “Since 2014, Bell has invested more than R3.5 billion, well above the R750 million in net profit it generated during the same period.”
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Shareholder activist Chris Logan, who owns shares in Bell, was involved with Aksoy earlier this year in an attempt to force the board to align management’s compensation policy with creating value for shareholders. The initiative failed, prompting Logan to state: “Bell has a great product and a great reputation around the world, but it is being destroyed by a management strategy that focuses on growth at any cost.”
Green shots
On Monday, Aksoy said the announcement of the share transaction did not reveal details about the price. But he noted that during the July General Shareholders’ Meeting, Bell Equipment chairman Gary Bell told shareholders that the board had the right formula to change the business and bring market prices closer to or better than the value of the net asset.
“This,” Aksoy said, “highlights Gary Bell’s belief that Bell shares had a path to having a net asset value or higher.”
During the six months to the end of June, the company’s revenue declined 24% to just over R3 billion and overall profit fell 119% to a loss of 31 cents. However, the net cash flow increased from an outflow of R124 million in the first half of 2019 to an inflow of R444 million.
Aksoy said the change in cash flow was positive news. “By closing its production facilities and selling excess inventory, for the first time in five years, Bell was able to reduce net debt, down 40% to R1.1 billion from R1.8 billion.”
An additional positive factor, Aksoy said, was management’s reference to green shoots of recovery in many of its markets.
