Bombshell in South African fibre battle

Key players in Community Investment Ventures Holdings’ (CIVH) and Vumatel’s acquisition of a large stake in Herotel dismissed allegations of a hostile takeover and behind-the-scenes shenanigans.

On 24 February 2022, Vumatel and CIVH announced they had acquired a 45% non-controlling stake in Herotel.

Remgro, New GX and CIH own CIVH, and CIVH is the sole shareholder of Vumatel. The latter was recently consolidated with DFA under the Maziv banner.

Herotel is a fixed wireless Internet service provider and a growing player in South Africa’s fibre-to-the-home industry, focussing on secondary cities and small towns.

Vumatel said the acquisition would accelerate Herotel’s vision of connecting more of the country’s secondary communities.

“This investment can unlock even greater opportunities for both Vuma and Herotel to access, connect, and uplift more communities,” Vuma CEO Dietlof Mare said.

Herotel CFO Francois Wessels said he was confident the deal would help accelerate their vision to connect as many South African communities as possible.

It looked like a deal where everyone got what they wanted.

• Herotel shareholders received a great payout, which is what many initial investors sought.

• Herotel now has a stable shareholding and board, as well as the support it needs to accelerate its operations and expand its footprint.

• The acquisition would assist in growing Vumatel and CIVH’s fibre footprint and help them reach rural and lower-income communities across South Africa, especially in secondary cities and small towns.

Scale is core to running a successful and profitable fibre network, and the Herotel deal will give CIVH and Vumatel additional scale.

CIVH was so committed to Herotel that it stated up front that it wanted to increase its shareholding to 100%.

CIVH, through Vumatel, initially acquired a non-controlling minority stake in Herotel and made an offer to the other remaining shareholders to acquire control.

The deal is awaiting approval from the Competition Commission and ICASA to make this happen.

Herotel co-founder Alan Knott-Craig’s explosive allegations

Just over two years after the Herotel deal was completed, Alan Knott-Craig, the company’s co-founder, published his biographical book, Life Lessons.

In this book, he painted a picture of executive revolts, boardroom drama, and dirty tricks at Herotel between 2014 and 2022.

After the company was formed, Knott-Craig served as executive chairman, which gave him a great deal of influence.

He said the first cracks started to show in early 2020 when his relationship with Herotel CEO Van Zyl Botha broke down. A battle for board positions was also brewing.

He said Botha lobbied for him to step down as executive chairman, starting an epic boardroom battle. Knott-Craig subsequently vacated the position.

On 11 March 2021, there was a key vote for Herotel directors. On one side were Knott-Craig’s supporters, and on the other were those who supported the CEO.

Knott-Craig said he won this round. Most new directors supported his vision for the company and were key shareholders. However, there were more battles to come.

Knott-Craig said the former Vumatel and CIVH CFO Kobus Viljoen approached him to buy his 13% stake in the company.

He alleged that Botha, who did not like him, was strategising to get rid of a “troublesome shareholder” through a CIVH buyout.

By buying Knott-Craig and a private equity firm, Medu Capital’s shares, CIVH/Vumatel would own 31% of Herotel and become its largest shareholder.

Another benefit of this deal is that it would not require regulatory approvals from the Competition Commission. It would not be seen as a change in control.

Knott-Craig did not sell. “I would never cut and run, leaving my fellow shareholders to be diluted to nothing through perpetual rights issues and having zero option for liquidity,” he said.

This was not the end. CIVH/Vumatel returned with a deal to buy out all shareholders. The Herotel board gave them ten weeks to make a formal offer.

However, Knott-Craig said he did not want to sell. He wanted to build a national broadband powerhouse to take on Telkom and offer affordable connectivity.

He tried to get a loan from Standard Bank to buy out all Herotel shareholders who did not share his vision.

He said Standard Bank came close to lending him the hundreds of millions he needed to buy another 35% of the company.

However, before the bank would give him the money, they wanted to speak to the CEO, CFO, and other directors.

In this meeting, Botha told Standard Bank the executive team would walk out if Knott-Craig bought additional shares. This torpedoed the loan and reportedly cost Botha his job.

Knott-Craig’s hostile takeover claim

Knott-Craig approached Metrofibre about buying the 35% Herotel shareholding he wanted to do through the Standard Bank loan. They were keen.

CIVH/Vumatel was still in the game, and he said the Herotel board gave the two companies a strict deadline for final offers.

Knott-Craig said CIVH/Vumatel ignored this deadline, and it looked like the Metrofibre offer would be an automatic winner. However, other factors were at play.

The private equity fund surprised everyone by announcing it had sold its 18% Herotel shareholding to CIVH/Vumatel.

Metrofibre still wanted to make a deal, and he claimed the Herotel board was still keen on having them as shareholders.

However, Knott-Craig said CIVH/Vumatel had been manoeuvring behind the scenes and bought another 16.9% from minority shareholders.

This brought their shareholding to 34.9%, just below the Takeover Regulatory Panel’s (TRP’s) 35% threshold, which would have forced them to make an offer to buy out all shareholders.

“What started as a cheeky move, with the company buying the private equity firm’s stake, has turned into a full-blown hostile takeover attempt,” Knott-Craig said.

Although CIVH/Vumatel said it was not a hostile takeover, Knott-Craig said it was indeed a hostile takeover bid.

Considering the recent events and change in shareholding, Knott-Craig realised that the CIVH/Vumatel deal was the only one which would not hurt Herotel.

“As painful as it is, that’s just how it is,” he said. He subsequently supported the CIVH/Vumatel deal.

Metrofibre walked away, and on 24 February 2022, Vumatel announced that it had acquired a 45% non-controlling stake in Herotel. It later increased it to 49.96%.

Knott-Craig approached CIVH to make a deal

MyBroadband has learned that, unlike the version in the book, Knott-Craig approached CIVH to buy Herotel. He even introduced other Herotel shareholders to CIVH.

A CIVH spokesperson told MyBroadband that Alan Knott-Craig approached CIVH in 2020 to present the transaction to them.

Herotel also confirmed this version, saying Alan Knott-Craig approached the former CIVH CFO Kobus Viljoen on 2 June 2020 about a deal.

It was only after Knott-Craig approached CIVH that Botha first met with CIVH. Therefore, the story that Botha and CIVH schemed to buy Knott-Craig’s shareholding is untrue.

Even more telling is that Knott-Craig had regular contact with CIVH about the progress regarding the deal.

CIVH told MyBroadband that following engagements with the Herotel board, it made offers to the Herotel shareholders to acquire a stake in the company.

CIVH worked through the Herotel board to ensure it adhered to all legal, ethical, and corporate governance standards. The Herotel board confirmed this.

This debunked Knott-Craig’s claims that the Herotel board were blindsided when CIVH announced a deal with a private equity firm and smaller shareholders.

It is also misguided to call it a hostile takeover. The Herotel board worked with CIVH on the deal and recommended it to shareholders.

Nearly all shareholders, including Knott-Craig, voted in favour of the deal and considered it a good outcome.

“The board, with their advisors, managed the transaction, not management, and eventually approved and recommended the transaction to shareholders,” Herotel said.

Herotel shareholders, including Alan Knott-Craig, unanimously voted in favour of the CIVH deal.

“Most of these board members were appointed by AKC at the March 2021 shareholders meeting,” Herotel said.

A hostile takeover is an acquisition in which one company takes control of another without the approval or consent of the target company’s board.

As the Herotel board approved and recommended the CIVH deal to shareholders, it is impossible to be a hostile takeover.

CIVH told MyBroadband that successful transactions were concluded with various Herotel shareholders, including Knott-Craig.

These transactions resulted in CIVH holding a non-controlling minority interest in Herotel by February 2022.

The meeting with Standard Bank

Knott-Craig claimed that the Herotel board met without Botha to discuss grounds for his dismissal following the Standard Bank meeting.

He said the board unanimously agreed that Botha should be removed, which resulted in Botha leaving the company on 13 August 2021.

However, Herotel’s version of events was very different. They said four parties conducted a due diligence on Herotel.

Alan Knott-Craig’s pyramid structure, Nincor Investments, was one company which did due diligence on Herotel.

“Like in any deal, the investor wanted to know if the management team was committed and could achieve the envisaged results,” Herotel said.

Botha discussed the matter with the executive management team and asked them how they felt about Knott-Craig gaining control of the company.

“The team was unequivocal and unanimous. They would all tender their resignation if Alan Knott-Craig gained control,” Herotel said.

When Standard Bank asked Botha about the deal related to the management team he represented, he told them they would all resign.

“The CEO simply told them the truth, which would, in any event, surface later on through the due diligence process. It was not his personal opinion; he merely stated the facts,” Herotel said.

Although management had the exact same option to sell their shares to CIVH as other shareholders, they decided to not sell and grow the business.

The Herotel management genuinely believed in the company’s strategy, with Knott-Craig out of the picture.

Herotel also clarified that Botha was not dismissed. The company said most board members and shareholders at the time were conflicted as Knott-Craig made them offers for their shares.

“Van Zyl Botha left under a mutual agreement with the board and took some time off to spend with his family,” Herotel said.

Alan Knott-Craig’s comments about the situation

The information which emerged after MyBroadband investigated Knott-Craig’s claims disputed his version of events.

MyBroadband asked Knott-Craig whether he stood by what he said in his book and the allegations regarding Botha and CIVH.

Knott-Craig responded, saying he has no hard feelings toward any of the parties.

“I just wrote about my experience for the benefit of other aspiring entrepreneurs. It was a big boardroom battle, not life or death — just rough and tumble,” he said.

He maintained it was a hostile takeover. “To me, it was hostile. To others, it wasn’t. We’ve agreed to disagree,” Knott-Craig told MyBroadband.

He said it all boiled down to a difference in strategies. “I wanted to push fibre into the township; the others didn’t,” he said.

Knott-Craig did not answer questions about whether he engaged with anyone about the allegations in his book.

He also did not provide details on why he believed making the allegations in the book was important.

Herotel disputed Knott-Craig’s claim that he wanted to push fibre into the township and that the others didn’t.

The company highlighted that it has 338,000 fibre stands in townships and 245,000 stands in traditional suburbs.

“So, the majority of Herotel’s fibre assets are in townships. This was always part of the CEO and exco’s strategy,” the company said.

“Herotel pioneered building in lower-income areas, and more than 50 such projects in different locations have been executed.”