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Absa Capital’s R3.7 billion offer for building materials distributor Iliad Africa was called off yesterday, leaving the market guessing whether the withdrawal was because of higher corporate financing costs in tight global credit markets.

September 26, 2007

By Tom Robbins

Cape Town – Absa Capital’s R3.7 billion offer for building materials distributor Iliad Africa was called off yesterday, leaving the market guessing whether the withdrawal was because of higher corporate financing costs in tight global credit markets.

It is unclear whether the UK’s Barclays, which owns a controlling 56.6 percent stake in Absa Group, was involved in the decision.

Absa Capital withdrew the offer less than two months after it had said it was confident the deal would be unscathed by the turmoil in international debt markets.

Absa Capital would not comment on the pullout, but Iliad said yesterday that Absa Capital had indicated the “capital structure” of the debt and equity offer was no longer “feasible”.

Iliad added that Absa Capital had said its decision to withdraw the offer “did not reflect in any way on its perception of the underlying value of Iliad”.

While Absa Capital previously said no decision had been made on whether to finance the deal internationally or domestically, the global credit crisis that followed US subprime mortgage woes has dramatically slowed private equity deal flow in the UK and US.

Imara SP Reid analyst Warwick Lucas speculated that a global view might have been taken.

“With the global interest rate ructions there may have been an order from Barclays’ head office to its satellite, Absa Capital, that it shouldn’t take on any more debt.”

But Lucas added that local conditions had also become more volatile since the initial offer. Local interest rates have been hiked by half a percentage point since the offer was made on July 18.

Previously Absa Capital said the deal was small enough to be financed locally.

Iliad chief executive Ralph Patmore said that, on balance, he was happy that the unsolicited offer had been withdrawn.

On the day, the share price closed 17.2 percent down at R17.80.

On July 18, the day the offer was made, the share had climbed 14.66 percent to R23 on the news.

“Personally I am a lot happier the way we are and the bulk of management feels that way as well,” Patmore said.

Ricco Friedrich, a senior portfolio manager at Sanlam Investment Management (SIM), said Iliad had reported exceptional first-half profit and he expected the firm to continue to deliver for the full year, despite a slowdown in residential spending. SIM had supported the offer of R24 a share and there had been no vocal opposition from other shareholders.

Patmore said Iliad would look to become “a little more aggressive” and take on more debt as a way to defend itself from other potential private equity buyers.