Sun, 16 May 2021

  • Local telecoms company Huge made its intention to purchase 100% of Adapt IT known in January.

  • Huge Group is offering shareholders 0.9 of its shares for every Adapt IT share, a swap ratio based on a reference price of R6.13 and an implied price of R5.52 per Adapt IT share.
  • But the possible acquisition has been overshadowed by a competing offer made by Canadian software company Volaris Group last week. Unlike Huge, Volaris has offered cash of R6.50 per Adapt IT share.

The interest that technology company Adapt IT has attracted from bidders of late has led to suggestions that a bidding war is brewing - but for Huge Group, the first company to make a bid, competing is not an option.

Local telecoms company Huge made its intention to to purchase 100% of Adapt IT known in January. The offer is based on a share swap of 0.9 of its shares for every Adapt IT share, a swap ratio based on a reference price of R6.13 and an implied price of R5.52 per Adapt IT share. But the possible acquisition has been overshadowed by a competing offer made by Canadian software company Volaris Group last week. Unlike Huge, Volaris has offered cash of R6.50 per Adapt IT share.

James Herbst, CEO of Huge, said the R6.50 Volaris is offering is too low and Huge would not have bid at R5.50 unless it thought there would be more of an upside for shareholders.

"The difference in terms of what we are offering, is that we don't just take all the upside for ourselves because we are also sharing the Huge upside with the Adapt IT shareholder and vice versa," he said.

If Adapt IT shareholders go with the Volaris offer, it will become part of that company, which is a subsidiary of Canada-based Constellation Software which is listed on the Toronto Stock Exchange. However, he said it was in the interest of shareholders to keep Adapt IT listed on the JSE, which would allow shareholders to gain more from the new company as it grows and brings more value to them.

Herbst explained that the motivation for Huge wasn't to acquire Adapt IT on the cheap, despite its offer being at a premium, and was rather about building a bigger business, which is why it won't change its offer. The group's offer was earnings-neutral, which means no shareholder base from Adapt IT or Huge would lose at the expense of the other. But upping its offer, which is based on international financial reporting standards, would disadvantage Huge's shareholders.

No bidding war

"So, we won't compete with Volaris on this. If Adapt IT shareholders want to take the cash offer and forego any cash upside, it's [all right]," Herbst said, dismissing any ideas about a bidding war.

Huge made its bid for Adapt IT official on 16 April, with the publishing of its general offer circular, which has given shareholders until July to either accept or reject its offer - something that Herbst said would not be a good move.

"We are not saying that [CEO] Sbu Shabalala, Tiffany Dundson [chief commercial officer] and the management team didn't have a strategy or objectives, we are not necessarily saying that they would need us. What we are saying is that ,at a shareholder level, it made a lot of sense. If you think about it, our interest in Adapt IT has possibly brought Volaris and even Black Sheep Management to the table," said Herbst.

He was referring to the recent acquisitions of Adapt IT stock by Dublin-based Blacksheep Master Fund, which acquired almost 10 million Adapt IT shares last week.

In the meantime, Adapt IT is has begun the approval process of its response circular, which will be issued by 17 May. The response will include details on the group's valuation based on the opinions of an independent board and an independent expert, including whether the Huge offer is fair and reasonable.

Source: News24

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