JSE-listed Altron is offering minority shareholders R47.50 for every Altech share as it seeks to take ownership of the subsidiary from 61.4% to 100% to remove any overlaps between businesses and build on its convergence strategy.
Altron this afternoon announced that shareholders can take a cash payout, or up to 50% of the offer in Altron shares, which values the deal at around R1.8 billion. The deal will see Altech delisted.
Altech is Altron's largest revenue contributor, accounting for R10.4 billion in the year to February. In May 2008, the group said it aimed to create one listed entity and - since 2001 - Altron has brought partly-owned subsidiaries back into the fold, reducing the amount of companies from 10 to two.
This is the second time Altron has made a buyout bid for Altech after shareholders rejected an offer made five years ago. Towards the end of 2007, Altron proposed to Altech and Bytes Technology Group minority shareholders that a deal worth R4.8 billion be orchestrated to bring the two subsidiaries into the fold. This would be settled through a share swap.
Bytes has subsequently become an Altron subsidiary and is its third-largest contributor to revenue for the financial year that closed at the end of February. In May 2010, Altron said it was keen to buy out minorities in Altech in the future.
Makes sense
CEO Robert Venter tells ITWeb that Altron has always said that it sees strategic benefits to buying out the minorities, which would give investors one entry point to the companies. He adds that a new, flatter, structure will make it easier to align synergies between Bytes Technology Group and Altech, which is a strategic aim.
Venter says that there is a vast amount of convergence currently, and flattening the structure somewhat makes it easier for Bytes and Altech to take advantage of these opportunities. He adds that customers have also been indicating that they want one supplier, and Altech and Bytes sometimes overlap each other.
The offer is a 31.1% premium to the volume weighted average price of Altech shares in the 30 days before the first cautionary was released, which was 22 March. Altech's shares are currently trading at R44.60, having leapt R10.21, or 29.69% on the announcement, giving it a market capitalization of R4.7 billion.
Cleaning up
Altron, which saw its shares lose 4.73% during the day to R19.53, has a market capitalization of R2 billion. Venter says that whether the group will raise debt depends on which way shareholders go and whether they elect cash, or stocks.
Altron ended the 12 months to February with cash and cash equivalents of R917 million. Cash generated by continuing operations of R1.9 billion was down around 7% on the prior year.
Revenue gained 7% to R24.8 billion, while earnings before interest, tax, depreciation and amortisation (Ebitda) decreased 19% to R1.6 billion compared with last year. It made a profit for the year from continuing operations of R707 million, a 12% gain.
"Our overall results were impacted by operating losses from the Altech African operations and a disappointing performance from Powertech in the second half of the year. The good news is that Altech East and West Africa have been disposed of effective on 28 February 2013 and R151 million of Ebitda losses will not recur in the current financial year," said Venter at the time.
Altech recently reported its annual results and said revenue from continuing operations was higher, at R10.2 billion, from R9.6 billion last year. While it made a R357 million profit from continuing operations, it reported a R1.6 billion loss from discontinued operations and a loss of R1.28 billion overall.
Although revenue increased, operating profit was lower than that of the previous year, mainly due to losses incurred in Altech's operations in East and West Africa. At the end of September, Altech agreed to sell its 75% stake in West Africa, because the entity required additional investment and it was costly to run from SA.
Subsequently, in January, Altech swapped its troubled East African stake for equity in Liquid Telecommunications, a telecommunications company focusing on developing markets.
Selling these units will see the termination of operating losses of R165 million in East Africa and R39 million in West Africa, totalling R204 million.
Share