Return to the mother ship
The all-share offers, if accepted by the required 75% of minority shareholders in the two companies, will see Bytes and Altech delisted from the JSE, possibly by the end of the year. They will join a long list of Altron companies — Fintech, Autopage, Powertech — that the group has taken off the bourse in the past decade. Altron is now the only remaining vehicle for investors to gain access to the group’s vast interests, which range from electrical equipment to cellphones.
Altron CEO Robbie Venter says the market is demanding a more cohesive approach, as the telecommunications and IT industries converge. Altech is a big player in telecoms — it owns Altech Autopage Cellular, one of the country’s big independent cellular service providers — and Bytes is a big player in IT services, competing with the likes of Business Connexion (BCX) and Dimension Data
The convergence of the two industries, evidenced by Telkom’s recent (failed) bid to buy BCX, will see IT companies partnering more and more with telecom providers to win contracts. Venter says a tender to provide a broadband network for the city of Johannesburg, for which Altech has been shortlisted, gives clues about how Altech and Bytes will work together more closely in future. Altech has drawn heavily on Bytes’ Systems Integration division in preparing its bid.
Venter plays down suggestions that there are serious cultural differences between Altech and Bytes, differences which Altron is hoping to smooth over by delisting the two companies and bringing them closer to the Altron mother ship. “The cultures of the two are consistent with the Altron culture,” he says. “In each company there are different means of management, but I don’t think that’s the reason they haven’t worked closely in the past. They’ve just never really found themselves competing in the same markets.”
He says that despite the convergence of IT and telecoms, there are no plans to merge Altech and Bytes. The two companies’ brand names will remain.
Having Bytes and Altech co-operate more closely is, however, only one of several reasons offered for last week’s announcement. Venter says the proposed acquisitions will also further simplify the corporate and operating structure, improve liquidity in its shares, create a single entry point into the group, and improve cost efficiencies.
Minorities will receive a 29% premium for their Bytes and Altech shares, calculated using the respective 30-day volume weighted average price for each share, based on each company’s share price on the day before the first cautionary announcements. Analysts polled by the FM say the offers to minorities are fair.
“Together with our adviser, Investec, we looked at what we considered fair value for those businesses,” says Venter. “We tried to balance the minority shareholders’ interests with those of Altron shareholders.”
There was always going to be the opportunity for arbitrage, though. Bytes and Altech rallied strongly on the back of the offers — Bytes rose 18% in the days following the announcement and Altech climbed 14%. Altron initially fell back about 8% but has since pared some of those losses, possibly because investors reckon that the deal will unlock efficiencies at group level.
The offers to the minorities will be settled in the form of Altron participating preference shares or, if minority shareholders elect to receive them, ordinary shares. However, shareholders must take a minimum of 15% in ordinary shares, and the offer premium reduces from 29% to 20% per ordinary share granted. A maximum of 14,4m new ordinary shares will be issued.
Though the participating preference shares have no voting rights, shareholders will probably prefer them over the ordinary shares, given their healthy premium.
Whichever route shareholders choose, the Venter family will retain voting control of the group. If all shareholders choose the participating preference shares, the Venters will retain a 63% shareholding in Altron. If all shareholders opt for ordinary shares (unlikely), the Venters’ shareholding will reduce to 54%.
The writer holds shares in Bytes
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