Huge Group has made an offer to acquire Adapt IT and received the necessary backing from its shareholders, but questions have been raised about the planned deal.
On 27 January, Huge Group announced it had made an offer to acquire all of the issued shares of Adapt IT.
The company offered to purchase these shares at R5.52 each, a 33% premium on its 30-day weighted average trading price on 26 January 2021.
It will fulfil the purchase by issuing 0.9 Huge shares for each Adapt IT share tendered to each shareholder that accepts the offer.
The company announced today that it has gained support from shareholders holding 80% of its shares to vote in favour of its planned acquisition of Adapt IT.
This followed discussions with the Takeover Regulation Panel and concerns raised by the Adapt IT board regarding the necessary Huge Shareholder approvals.
“This confirms that Huge is ready, able and willing to proceed with the offer,” Huge Group said.
Adapt IT confirmed on 29 January 2021 that it has received a notice of an unsolicited offer from Huge Group.
Adapt IT chairman Craig Chambers said the board is not permitted to comment at this time on the merits of the offer but will comply with all legal requirements throughout this period.
“The Adapt IT independent board is in ongoing discussions on this matter and will keep shareholders informed and up to date on this process accordingly,” said Chambers.
Adapt IT’s share price jumped from R4.03 to R5.00 per share on the news but has since retreated and is currently trading at R4.45 per share.
While Huge Group is talking up the mutual benefit of the deal, not everyone is convinced it will be welcomed by investors.
Vestact Asset Management portfolio manager Bright Khumalo questioned how Huge Telecom will fund the acquisition of Adapt IT.
“Where does Huge Group get the money to buy Adapt IT?” he asked. “Show me the money.”
Khumalo added that he is not keen to swop his Adapt IT shares for Huge Group shares.
“I think Adapt IT management, including CEO Sbu Shabalala, knows all of this already,” he said.
Huge Group CEO James Herbst explains
Responding to Khumalo’s comments, Huge Group CEO James Herbst told MyBroadband no shareholder of Adapt IT is obliged to exchange their Adapt IT shares for Huge Group shares.
Current Adapt IT shareholders who refuse this offer will therefore remain shareholders in Adapt IT.
He added that their offer to Adapt IT shareholders is to acquire all or any number of their shares for a purchase consideration of 552 cents per Adapt IT share.
The purchase will be settled by Huge Group delivering its own shares at a swap ratio of 0.9 Huge Group shares for every one Adapt IT Share.
To see how this might play out, Herbst provided an example.
Adapt IT has a total of 144,887,497 Adapt IT Shares in issue. Let’s say that shareholders representing 20% of Adapt IT’s total issued share capital accept Huge Group’s offer, but for only half their Adapt IT Shares.
This will mean that Huge Group will acquire 144,887,497 x 20% x 50% = 14,488,750 Adapt IT Shares and will deliver 14,488,750 x 5.52 ÷ 6.13 = 13,046,966 Huge Group Shares in payment for the purchase consideration.
Huge Group will then become a 10% shareholder of Adapt IT and the remaining Adapt IT shareholders will continue to hold their shares as fellow shareholders to Huge Group.
The minimum percentage of Adapt IT shares required to be tendered by Adapt IT shareholders before Huge is required to accept all tendered Adapt IT shares is 0.01%.