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Earlier this year, SA-based Huge Group stated that they had made an offer to shareholders of Adapt IT, “to acquire all of the issued Adapt IT shares at R5.52 per share,” reports MyBroadband. Since then, Canadian Volaris also made an offer, but at R6,50 a share. Management at Adapt IT preferred the offer from Volaris, with the independent board recommending that Huge Group’s offer be rejected on the basis of being “unfair and unreasonable.” James Herbst, who is the CEO of Huge Group, said that the independent board should be promoting competition between the two companies in order to get the highest offer, “but instead it is playing favourites.” This article was first published on MyBroadband. – Jarryd Neves
Fight for Adapt IT
Adapt IT’s independent board should promote competition between suitors to get the highest offer possible for Adapt IT shareholders, but instead it is playing favourites.
This is the view of Huge Group CEO James Herbst, one of the parties looking to acquire Adapt IT.
Two companies, Huge Group and Volaris, have made offers to acquire Adapt IT.
In January, Huge Group announced that it made an offer to Adapt IT shareholders to acquire all of the issued Adapt IT shares at R5.52 per share.
Huge said it will fulfil the purchase by issuing 0.9 Huge shares for each Adapt IT share tendered to each shareholder that accepts the offer.
Two months later, Canadian software group Volaris made a cash offer of R6.50 per share to acquire Adapt IT.
Adapt IT’s management preferred the Volaris offer and the company obtained irrevocable undertakings supporting it from shareholders holding 44.4% of Adapt IT shares.
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%).
Adapt IT’s independent board also recommended that shareholders reject the Huge Group offer, calling it “unfair and unreasonable”.
This followed an analysis by independent expert Nodus Capital which concluded that a fair price range for Adapt IT was R7.00 to R9.09 per Adapt IT share.
It looked like Volaris had the deal in the bag, but Huge Group responded by increasing its offer from R5.52 per share to R9.09 per share.
This was done by increasing the originally announced swap ratio from 0.9 Huge shares for each Adapt IT share to 1.37 Huge shares for each Adapt IT share.
With the Huge Group offer now at the upper end of Nodus Capital’s valuation, it should be seen as a fair and reasonable offer. It also means that the Volaris offer is unfair.
Volaris and Adapt IT have subsequently issued a press statement, revealing that Adapt IT’s independent board views Volaris’ offer as “unfair but reasonable”.
With irrevocable undertakings to support the Volaris offer from large shareholders, who include Adapt IT management, it created a challenge.
They could not back out of the Volaris offer, but it is also not easy to justify it following the Nodus Capital valuation and higher Huge Group bid.
Instead, Adapt IT shareholders holding 47.7% of the company gave irrevocable undertakings to Volaris to support the deal if it increases its offer such that the independent board and independent expert revise their opinions and state that the offer is fair.
To date there has been no clear indication that Volaris will increase its R6.50 per share cash offer to Adapt IT shareholders.
Adapt IT’s independent board has now engaged Nodus Capital to provide a revised opinion on the Huge offer in the light of the increased consideration.
Feedback on the revised opinion from Nodus Capital and views on the increased Huge offer are expected on Friday.
Commenting on the latest developments, Huge Group’s James Herbst said it appears that Volaris was not prepared to increase their offer to within the fair value range.
“They might have been of the view that this was unnecessary given the support they have received from some large shareholders to vote in favour of the scheme,” he said.
This, Herbst said, places them in a position to squeeze out dissenting and non-attending minorities at R6.50 rather than at a price which is in the fair value range. This is done in concert with the independent board.
“If they had upped their offer by R0.50, this would have brought their offer into the fair value range and allowed them to make the delisting proposal,” he said.
“It is odd why they would have spent considerable hours to put together a 106 page document proposing the scheme and the delisting only to see it binned because the offer is deemed unfair.”
“What exacerbates the situation for them is Huge’s increased offer of R9.09.”
Herbst said he would have expected the independent board to solicit the highest offer possible for Adapt IT shareholders by promoting competition between the suitors.
“Instead, the independent board is trying to devalue the Huge offer. What they should be doing is soliciting a higher offer from Volaris rather than trying to discredit ours,” he said.
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