Dimension Data is to pay R293.8 million to Worldwide Africa Investment Holdings (WAIH) and issue it with 42.4 million shares.
<B>Put option</B>
A put option is a contract that gives the holder the right to sell a specified number of shares of a particular stock at a predetermined price (the "strike price") on or before a certain date. The holder profits from the contract if the stock`s price drops. If the holder, in this case Worldwide Africa Investment Holdings, decides to exercise the option (as opposed to selling it), the writer of the shares (Dimension Data) must buy the security. The writer profits when the underlying security`s price remains the same, rises or drops by less than the premium received.
In this case, Worldwide Africa profited significantly from the fall in Dimension Data`s share price and the decline in Plessey`s market value. Dimension Data had to buy the Plessey stake at the agreed price of R375.4 million plus 42.4 million Dimension Data shares. The separate deal saw it sell the Plessey stake back to Worldwide Africa at the current market value of R81.6 million, allowing it to maintain its black empowerment partnership with Worldwide Africa. Worldwide Africa was thus able to pocket almost R294 million and a near 2% stake in Dimension Data.
In terms of an agreement signed in December 1998, WAIH had the option to sell its 51% shareholding in telecoms company Plessey to Dimension Data Holdings SA, which owns the rest of Plessey. WAIH has now exercised the option.
Dimension Data is to pay WAIH R375.4 million in cash plus 42.4 million Dimension Data shares for the stake. The shares, at Friday`s closing price of 268c, are worth R113.6 million.
In a separate agreement, WAIH is to buy the stake back from Dimension Data Holdings SA for R81.6 million, leaving its stake in Plessey unchanged, but at a cost to Dimension Data.
The net cash flow impact for Dimension Data is an outflow of R293.8 million.
An analyst says although the market had factored the option in, there were some surprises in the deal. "I think most people expected the whole thing to be settled in cash, so the share issue took us a little by surprise, but the main surprise is the fact that Worldwide bought the stake back. I don`t think anyone expected that to happen.
"But in retrospect it actually makes sense for DiData. Worldwide is an empowerment company, and it`s good that DiData can keep it as a partner. From Worldwide`s perspective, it gets to keep its Plessey stake, put a decent amount of cash in the bank and get a small stake in DiData."
He says the original deal was signed when valuations were high and IT share prices were soaring. "Few people back then, if any, expected DiData`s share to fall like it has."
Another analyst says the deal is also significant in that it shows how much of Plessey`s value has been lost.
"The cash and shares together value the 51% Plessey stake at about R489 million. But when you consider that the parties agreed that Worldwide Africa would buy it back at R81 million, and that`s at current market value, you can see how much value has gone."
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