Huge Group has increased its offer to Adapt IT shareholders from an effective R5.52 per share to R9.09 per share last week.
This was done by increasing the originally announced swap ratio from 0.9 Huge shares for each Adapt IT share tendered to approximately 1.37 Huge shares for each Adapt IT share tendered.
The improved offer comes after the Adapt IT board recommended that its shareholders reject the initial offer of Huge Group.
A group of shareholders holding 44.4% of Adapt IT shares have, instead, given an “irrevocable undertaking” to support a competing bid from Volaris.
On 7 April 2021, Volaris made a cash offer of R6.50 to buy over 50% of the issued ordinary shares and gain control of Adapt IT.
“Volaris has obtained irrevocable undertakings from shareholders holding 44.4% of Adapt IT shares to support its offer,” the company said.
These shareholders include Black Sheep Master Fund (22.8%), Sbu Shabalala (10.4%), Nedgroup Investment Advisors (5.1%), Tiffany Dunsdon (3.3%), and Rubistar (2.8%).
Huge Group CEO James Herbst previously said Huge and Adapt IT are “better off together”, remaining listed, and creating more value for shareholders than R6.50 per share.
“There are significant synergies between Huge and Adapt IT. Huge invests in companies exposed to connectivity, cloud, software and x-tech,” he said.
“Adapt IT is a software company. Be that as it may, Huge has never suggested integrating Huge’s businesses with those of Adapt IT. The rationale was always investment scale, not business scale.”
Huge Group has now improved its offer to Adapt IT shareholders to increase the chances of the deal happening.
At R9.09 per share, Huge Group’s offer is significantly higher than what Volaris is offering shareholders.
This revised offer is, however, not available to all Adapt IT shareholders.
James Herbst said his understanding is that Adapt IT shareholders who have signed irrevocable undertakings in favour of Volaris cannot participate in Huge’s revised huge offer.
“An undertaking that cannot be revoked is irrevocable. These shareholders cannot revoke their undertakings,” Herbst said.
“Therefore, Huge is only talking to shareholders of Adapt IT that hold the remaining 56% of its issued share capital.”
Commenting on the higher offer, Herbst said he never wanted Huge to get involved in a bidding war. “This was my position and that of the board of Huge at the time,” he said.
However, this was not the position Huge Group’s largest shareholder who has always believed Huge should increase its offer.
The catalyst for the higher offer, Herbst said, was when Nodus Capital concluded that a fair price range for Adapt IT was R7.00 to R9.09 per Adapt IT share.
Huge Group subsequently adjusted its offer to match the top end of the Nodus Capital valuation.
“Huge is pegging its offer at R9.09 a share while Volaris is pegging its offer at R6.50 per share,” said Herbst.
“Huge’s offer is higher, must be fair and reasonable because it falls within the Independent Experts’ fair and reasonable value range. It also allows an Adapt IT shareholder to retain their upside.”
Commenting on transformation at Adapt IT, Herbst said their offer is superior to that of Volaris.
“Huge is a South African company that understands transformation, supports it and is committed to it,” Herbst said.
“5% of Huge’s shareholders are empowered and this will add to Adapt IT’s BEE status, not detract from it. The same cannot be said of Volaris.”