Johannesburg - Materials and construction company Basil Read said it was considering a merger with TWP Holdings, a heavy construction firm with a focus on mining, in a union that could be worth about R2bn.
"Shareholders of Basil Read and TWP are advised that discussions are presently under way between Basil Read and TWP with a view to a possible merger," the companies said in a joint announcement to the Stock Exchange News Service.
Shares in TWP gained nearly 10% on the news and were last trading at 700c per share, while Basil Read stocks were 1.95% stronger and last trading at 1 570c/share.
TWP, which listed on the JSE in 2008, has flourished and declared itself relatively unscathed by the slowdown in the market, particularly the mining sector where it is a builder of deep mines.
Similarly, Basil Read - which bought Mvelaphanda Construction - said in a trading update on July 29 that its headline earnings per share for the six months to end-June would be up between 25% and 35%.
Nigel Townshend, CEO of TWP Holdings, said the deal was a merger of equals and that talks were "far down the line".
"If we can in fact arrive at a mutually acceptable offer or outcome we would like to see it finished towards the end of the year, which is about as soon as you can get it done within the regulations," he said.
"The least of the problems is the Competition Commission. These companies are in two different spaces," Townshend said.
Analysts laud proposal
Analysts said the deal was packed full of synergies and turned on an expected improvement in the commodity market.
"Basil Read has indicated in the past that it wanted to make acquisitions in line with its strategy. On the face of it, it looks like a good thing," said Stephen Meintjes of brokerage Imara SP Reid in an interview.
"It's a good time to go into mining if you think the sector is going to pick up and they are both probably preparing for the upturn," he said.
"I think it's an interesting deal and I like it," said Lance Krowitz, an asset manager for Stanlib. "But it depends on the pricing and the structure," he said.
The synergies with Basil Read's business made sense. "You can give it [TWP] a piece of ground and it will drill, support, help finance and even hand over the mine when it's running. Basil Read is not in the space," Krowitz said.
"TWP needs a construction company when it runs the mine to construct roads and other stuff around the mine. So the merger would be complementary.
"Basil Read also has an opencast mining division which TWP could help it to operate," Krowitz said.
Said Townshend: "There are quite a number of reasons, with the most compelling one being we are often asked by a lot of clients - particularly outside South Africa - to provide a complete service, where we do the design and construction. Tying up with Basil Read will allow us to accomplish that."
"There's the issue of size," he said. "It will make the combined group a very strong design and construct group, particularly when we are increasingly looking at public-private partnership-type projects where we can provide a complete A to Z service."
- Fin24.com