May 18, 2018 / 10:19 AM / 3 days ago

UPDATE 2-South Africa's Murray & Roberts agrees deal for Aveng

* Merger to create multinational engineering and construction group

* M&R to early redeem Aveng’s outstanding convertible bonds

* No firm offer made yet (Adds more details)

By Nqobile Dludla

JOHANNESBURG, May 18 (Reuters) - South African-based Murray & Roberts has agreed in principle to take over construction firm Aveng Limited in a one billion rand deal ($78.5 million).

The proposed deal announced by both firms on Friday would give additional scale in Murray & Roberts’ (M&R) key markets such as Australasia and Africa, while shoring up liquidity in loss-making Aveng in the near-term.

The deal comes after a month after Murray & Roberts (M&R) rejected a takeover bid by German investor and biggest shareholder ATON.

M&R said in a statement if a formal offer is made, it will buy out Aveng’s stock worth 1 billion rand by issuing new shares, assuming that Aveng separately raises at least 300 million rand in new capital through its proposed rights offer.

Should Aveng not be able to raise 300 million rand, the transaction value will be reduced, it added.

M&R spent billions of rand transforming itself from a local builder to a multinational firm with operations in Southern Africa, North America and Australasia regions.

But has been under pressure for nearly a decade as its order book has been hit by a weak South African economy and reduced spending by clients in oil, gas and mining industries.

The merger would see Aveng integrate its Moolmans and McConnell Dowell businesses with Murray & Roberts’ underground mining and oil and gas portfolios.

“The primary objective of the potential transaction is to establish a large multinational engineering and construction group with the scale necessary to compete more effectively in relevant markets,” Murray & Roberts’ Chief Executive Henry Laas said.

Aveng’s Australia-based business, McConnell Dowell, is a major engineering, construction, and maintenance contractor, focused on the building, infrastructure and oil & gas sectors in Australia, New Zealand, the Pacific Islands, Southeast Asia, and the Middle East.

Its mining business, Moolmans, is one of the largest surface mining contractors in Africa, involved in all aspects across the mining value chain.

Aveng has been making losses after being hit by a slump in South Africa’s construction industry and struggling with a debt-burden of 3.25 billion rand but has embarked on a shakeup of its business. Its shares shot up nearly 30 percent at one point on news of the deal, before it pared gains.

In addition to the potential merger, M&R proposed to redeem Aveng’s outstanding convertible bonds maturing in 2019 early by amending the terms and conditions. If implemented, settlement of the bonds will be at par value 2 billion rand plus accrued interest.

This will be funded from a combination of new financing facilities of 1.8 billion rand and available cash resources.

By 1445 GMT, shares in Aveng had reversed gains and were down 1.10 percent, while Murray & Roberts’ shares reversed losses and traded up 2.3 percent. ($1 = 12.6876 rand) (Reporting by Nqobile Dludla Editing by James Macharia and Keith Weir)

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