Huge squeezes Adapt IT shareholders as takeover bid gets mucky

Samuel Mungadze
By Samuel Mungadze
Johannesburg, 22 Apr 2021
Huge Group CEO James Herbst and Adapt IT CEO Sbu Tshabalala.
Huge Group CEO James Herbst and Adapt IT CEO Sbu Tshabalala.

Huge Group has upped the ante in its Adapt IT takeover bid, aggressively pushing shareholders to accept its offer, while discrediting Volaris’s cash proposition for the same shares.

Both Huge Group and Volaris recently launched separate attempts to take control of the JSE-listed software services company, and the bidding is now getting aggressive and mucky.

Huge Group released two videos this week, urging shareholders to reject the Volaris offer and consider its bid, prompting Adapt IT to hit back, cautioning investors not to be coerced into making a decision.

Adapt IT wants shareholders to receive an independent review first before making a decision on Huge Group’s unsolicited bid.

The company appointed Nodus Capital in February to make recommendations, which will help determine whether the proposed transaction is fair and reasonable to Adapt IT shareholders.

In January, Huge Group, whose subsidiaries operate in the telecommunications, media, technology and software industries, offered a swap ratio of 0.9 of a Huge Group share for every one Adapt IT share.

The swap ratio is based on a reference price of 613c per Huge share and an implied price of 552c per Adapt IT share.

Contrarily, Volaris is offering to acquire more than 50% of the issued ordinary shares of Adapt IT for 650c per share.

According to Adapt IT, the Volaris cash consideration represents a premium of 56.9% to the 30-day volume weighted average traded price of Adapt IT shares on the JSE of 414c, as at 26 January 2021, being the last trading date prior to the date on which the general offer by Huge Group to Adapt IT shareholders was announced.

Game gets muddy

Now, in a series of videos, Huge Group discredits the Volaris offer, while urging shareholders to accept its bid.

The company also takes a swipe at the Sbu Tshabalala-led executives, saying the Volaris deal only benefits senior Adapt IT executives.

“Huge Group is building a world-class business, a business that will make South Africa proud. That’s why we made the offer to merge with Adapt IT and we want Adapt IT shareholders to participate in the upside going forward. The Huge offer is a shareholder-centred offer. It’s about you, the Adapt IT shareholder. One should ask, is the Volaris offer about you or is it about Adapt IT’s two most senior executives,” says Andy Openshaw, Huge Group chief operating officer.

In the video, CEO James Herbst continues: “The Huge offer is unconditional. The executive Volaris offer has a raft of conditions and the time value of money erodes your offer price; R6.50 in one year is not R6.50 today and if you choose cash, R6.50 is all you will ever get and you will not get an upside. An institutional investor has been quoted in the press saying that the Volaris offer is a management buyout, or MBO. We agree with this view. MBOs are called MBOs because they are good for management. Does the Volaris offer have shareholder interest at heart?”

No to bullying

Adapt IT responded, warning shareholders not to be pressured to conclude the deal by end of business today.

“It has come to the company’s attention that certain Central Securities Depository Participants are requesting Adapt IT shareholders to respond to the Huge offer by tomorrow, 22 April 2021, which is not the deadline of the Huge offer.

“Shareholders are reminded that whilst the Huge offer opened on Monday, 19 April 2021, the Huge offer closes on Friday, 23 July 2021, and therefore, shareholders do not need to take any action prior to receiving the response circular and have until 23 July 2021 to accept or decline the Huge offer.”

The company urged its shareholders not to make any decisions, take any actions or provide any undertakings in relation to the Huge offer, until they have received the opinions of the independent board and the independent expert, as to whether or not the Huge offer consideration is fair and reasonable.

It says: “Shareholders are advised that, while Adapt IT had intended to issue its response circular more swiftly after the posting of the Huge offer circular, Adapt IT is required to wait for the independent expert's opinion, which must consider the value of Huge's shares and can therefore only be prepared once the independent expert has received and considered all the required information from Huge. Adapt IT’s response circular is expected to be released on or about 17 May 2021.”

Furthermore, Adapt IT reminds shareholders of the Volaris alternative, saying it is expecting the circular containing the Volaris offer to be distributed next month, well before the closing of the Huge offer, giving sufficient time for shareholders to consider it before the Huge offer closes.