Market positive about Altron shake-up
The market reacted positively to an announcement of big changes at Altron, which will see the end of an era as the Venter group prepares to give up control of the company after 51 years.
This after the JSE-listed group announced it had reached an agreement with Value Capital Partners (VCP) that will see the investment company make a capital investment of R400 million in Altron. There will also be changes to the group's control structure, to shift it from a family-controlled and -managed business to independent management.
"I think this is a very positive move for the Altron group, and with the management change and the cash injection comes the possibility of the business taking a refreshed approach to the ICT sector in South Africa," says Richard Hurst, director of enterprise research at Africa Analysis.
The market agreed and the share price jumped 20% after the announcement and closed over 16% higher yesterday at R8.72. This morning, the stock continued to rally in early trade.
"I think this is the right move as it seems the company will no longer be fighting its battles alone. One of the major benefits the recent changes will bring, will be the ability to apply fresh minds and eyes to opportunities and challenges facing the company and the sector," adds Hurst.
Changing of the guard
The deal is still subject to regulatory and shareholder approval, but if it goes ahead, Altron will issue new shares to VCP, giving the investment firm a 15% stake in the business. It will also see the end of over half a century of Venter family control of the business.
The Venter family has agreed that, should the transaction be successfully implemented, it will result in the collapse of Altron's current control structure through the conversion of the company's low-voting shares into a single class of voting shares.
Founder Bill Venter says he and the rest of the family will remain invested in and fully committed to the company and will thus retain their full economic interest.
At the moment, the Venter family has a 57% voting position in the Altron group, but its economic position is 17.5%. If the deal is concluded, a new mechanism will be put in place that will leave the family with a 25.1% voting position. This will remain in effect as long as the Venter family holds an economic interest of more than 10% in Altron.
"The dilution of the voting rights is a natural consequence of the deal, and like the change in leadership, will serve to breathe new life and direction into the company," says Hurst.
Bill Venter founded the company in 1965 as Allied Electric, and the company opened its doors as a designer and manufacturer of semi-conductor rectifier equipment, variable-speed drives and electronic signal equipment and transformers, among others.
Today, the group employs over 12 000 employees globally, and through its principal subsidiaries ? Altech, Bytes and Powertech ? is invested in telecommunications, power electronics, multimedia and information technology.
Bill Venter passed the CEO baton to son Robbie Venter in 2001 and stepped down as chairman of the board in 2009. He is currently non-executive chairman but plans to retire from that role at the end of the company's current financial year and will then assume the title of chairman emeritus and remain a non-executive director.
The group is looking for a new CEO, as Robbie Venter plans to step down from the role and become a non-executive director. He says the appointment of a new CEO will take place in a phased approach because there are still a number of key projects under way relating to "the repositioning of the group as a focused, but smaller, IT company".
"A change in leadership will be welcomed by the market and the sector as a whole. This has no bearing on the leadership qualities of the people in question, but rather goes to the need to create other opportunities for the business and to grow people within the business. It is natural that the successors will be guided by existing and new investors," according to Hurst.
Bill Venter says he is confident the proposed changes will have a positive effect on Altron going forward.
"Although more work needs to be done, the outlook is extremely positive with respect to getting the group back on a path of profitability and growth that is sustainable," he says.
"I think this is both the end of an era and the start of a new evolution for the company. The end of the era refers to the control exerted by the Venter family. Naturally, they will still have a say in the company that they have helped build, but the new evolution will see management decisions being more responsive to market conditions and based on investor value," adds Hurst.
VCP is an investment company founded by Antony Ball, founder and ex-CEO of Brait, and Sam Sithole, ex-CFO of Brait. As part of VCP's investment, both Ball and Sithole will join the Altron board, which is also looking to appoint new members who have a strong background in IT.
Hurst says the VCP leadership has developed a sound knowledge and experience in taking undervalued and underperforming assets and turning these around, delivering shareholder value.
This year, Altron's attempts at a turnaround began bearing fruit, as the group saw headline earnings per share swing from a loss to a profit for the six months ended 31 August, despite revenue decreasing 14% to R11.4 billion. Earlier in 2016, the embattled technology group reported it lost over R1 billion in total revenue for the year ended 29 February.
In terms of a strategy for Altron going forward, Hurst believes the company will need to focus on developing skills and taking on new opportunities emerging in the ICT sector, such as cloud computing, the Internet of things, and in particular, the application development and integration side of the market.