Murray & Roberts to sell civil engineering unit in new deal with government

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Murray & Roberts to sell civil engineering unit in new deal with government

Construction group Murray & Roberts (M&R) has confirmed its full participation in an agreement with the government that was signed on October 11, commiting the company to settle potential claims that arise from its much-publicised transgressions of South Africa’s competition laws. In return, the JSE-listed company has made several commitments, including a promise to dispose off a “meaningful interest” in its construction unit to a black-owned contractor.

Murray & Roberts was one of 15 companies to conclude settlement agreements with the country’s competition authorities in 2013, following the fast-track settlement process – a process started by the Competition Commission in 2011, after it emerged that the construction sector had engaged in widespread collusion, especially in relation to roads projects as well as projects associated with the 2010 FIFA World Cup. The companies were collectively fined R1.46-billion (US$101.9mn), with M&R’s portion of the penalty set at R309-million (US$21.6mn).

 

However, the South African National Roads Agency Limited (Sanral) had subsequently launched civil proceedings to recoup overpayments arising directly as a result of the prohibited practices.

M&R told shareholders in a statement that it had resolved to participate in a subsequent settlement agreement with government to address all claims by identified public entities, including Sanral.

M&R reported that negotiations were at an “advanced stage” with a prospective buyer of the company’s infrastructurebusinesses, which, once consummated, would result in its exit from the general building and civil engineering sector.

The proposed disposal was signalled by CEO Henry Laas in August, when he released details of a board-sanctioned plan to reposition the group as a multinational project company, focused on oil and gas, underground mining, as well as powerand water.

Laas reported that the decision to exit civil engineering andbuilding arose from a two-year strategic review by the board, which concluded that further restructuring would improve prospects for higher financial returns, despite the cyclical nature of the natural resources markets being targeted.

The disposal of the infrastructure units, meanwhile, would result in the creation of a leading black-owned contractor, whose prospects would be enhanced by the procurement reforms being pursued by government, which included possible ‘set asides’ for black firms.

M&R was not alone in seeking to align its civil engineering and building interests to a transformed market dynamic, with rival Aveng announcing earlier that it had concluded a binding agreement to sell a 51% beneficial interest in Aveng Grinaker-LTA to Kutana Construction for a maximum of R756-million. Kutana Construction is a black women-owned and -led business owned by the Kutana group, which is described as a Pan-African investment company.

As part of the October 11 settlement agreement between government and seven listed construction companies it was agreed that the companies would develop and/or mentor up to three emerging contractors to ensure workflow equivalent to at least 25% of their yearly construction turnover. Alternatively, they should dispose of not less than a 40% in their respective civil engineering and general building construction businesses to enterprises that were more than 51% black-owned, -managed and -controlled.

“As previously announced, the company is in negotiations with a prospective buyer relating to the potential disposal of 100% of the company’s infrastructure and building businesses to a black-owned purchaser and will be exiting the general building and civil engineering sector. Negotiations are at an advanced stage,” M&R said.

Also agreed is that, over the next 12 years, M&R will contribute its portion, or R21.25-million, of a collective yearly payment of R125-million into a fund to support transformation and skills development. Over the period, R1.5-billion will be injected into the fund, which is to be administered by an agency appointed by the National Treasury.

The first payment would be made in two tranches following the agreement becoming binding – an event that would be triggered by Sanral withdrawing its current claims against the companies. Thereafter, each subsequent annual installment would be payable on July 1 of each year to 2027, by which time M&R would have contributed R255-million to the fund.

 

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