Barloworld sells motor retail business

JSE-listed Barloworld has agreed to sell its motor retail business, comprising of 38 motor franchise dealerships in South Africa and Botswana, as a going concern to NMI Durban South Motors for an estimated R947.26 million.

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NMI-DSM is an equal joint venture between Barloworld Group and the Akoo family.

The disposal consideration will comprise the tangible net asset value of the business on the proposed closing date of the proposed transaction of 1 June 2021 plus R400 000 in goodwill.

The tangible net asset value of the business at 30 September 2020 was R547.26 million.

The purchase price will be capped at a maximum of R1.5 billion.

The transaction is still subject to a number of conditions precedent, including statutory and regulatory approvals and the approval of the sale of the business by the relevant original equipment manufacturers (OEMs) by no later than 31 March 2021.

The business represents leading global brands, including Audi, BMW, Ford, Toyota, Lexus, Isuzu, Mazda, Volkswagen and Mercedes-Benz, and is involved in the sale of new and used vehicles, the provision of supporting finance insurance products and aftermarket service, including parts sales.

After the finalisation of the transaction, Barloworld’s entire motor retail interests will be housed within NMI-DSM, and Barloworld will retain its 50% interest in NMI-DSM.

The proposed transaction excludes Digital Disposal Solutions, which includes Salvage Management and Disposal (SMD) and the TradersOnline platform, as well as the used-vehicle operations of Avis Budget Rental and Fleet.

Barloworld said the disposal was “in contemplation of the Barloworld Group’s exit from the motor retail business”. Explaining the rationale for the transaction, Barloworld said it had recently reviewed its strategy and the disposal is in line with its new strategy.

Barloworld said it believed its stakeholders will best be served by consolidating its motor retail and related services in a single ownership structure under NMI-DSM.

“Motor Retail is better served in a single entity that is dedicated to all motor retail related management, activities and dealerships,” it said.

Barloworld added that the Akoo family are excellent partners to the Barloworld Group and have driven an entrepreneurial approach by being hands-on in NMI-DSM and supporting overall corporate governance.

“Through restructuring Motor Retail into the NMI-DSM joint venture, Barloworld believes it is able to create a larger motor retail business with a focus on growth through a diversified brand portfolio,” it said.

Barloworld said capital allocation within the group is a key factor in driving return metrics and cash flow generation targets as part of the Barloworld Group’s overall objectives.

It said efficient capital reallocation for the motor retail business is achieved by Barloworld executing the proposed disposal and retaining its shareholding in NMI-DSM.

Barloworld highlighted in its latest integrated report that it is seeking a more balanced portfolio to generate long-term value, which has prompted the acquisition of Tongaat Hulett Starch (renamed Ingrain) in South Africa to access the less cyclical consumer sector.

The return on invested capital (ROIC) by Barloworld Automotive declined to 2.9% in the year to end-September 2020 from 13.2% in the previous year.

Barloworld Group’s stated goal is to achieve above-market growth and ROIC greater than 13% with positive economic profits.

Barloworld CEO, Dominic Sewela, said at the group’s most recent financial results presentation late last year that the acquisition of Tongaat Hulett Starch and the expansion of its Russian equipment business with the acquisition of Wagner Asia Equipment in Mongolia anchor the group clearly in terms of industrial capital distribution goods and related services and also anchor the group in terms of the food and ingredient businesses.

“These are going to be the core in terms of business verticals for Barloworld in the medium to long term as we manage the pivoting out of the motor, automotive and logistics businesses,” he said.

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