Former MTN South Africa CEO, Zunaid Bulbulia, and former senior banker and respected IT analyst, Duarte da Silva, are investing a combined R127.5 million into Huge Group, a company both serve on the board of.
Huge Group announced in a statement that Bulbulia and da Silva will each invest R 63.75 million to each gain a 6.8% shareholding in Huge. Non-executive director, Vincent Mokholo, will also buy R4.25 million worth of shares, or 0.5% of the company.
Praesidium Capital Management, acting in its capacity as general partner of the SA Hedge Fund En Commandite Partnership, has entered into the call option agreements with the Huge directors. The SA Hedge Fund is one of the largest shareholders of Huge.
The board members have been given the option to purchase ordinary shares from Praesidium at a price of R8.50 per share, exercisable on 28 February 2019.
Bulbulia was appointed to the board of the JSE-listed company as a non-executive director in January 2016 and da Silva was appointed as non-executive chairman soon after.
Mike Beamish, spokesperson and founder of Praesidium, says that the negotiations with da Silva and Bulbulia commenced more than a year ago, prior to their appointments as directors.
"We approached da Silva and Bulbulia in 2015 with a view for them to become fellow shareholders and thereby assist us, and the other material shareholders of Huge in building on the solid foundation that had been laid over the previous three years.
"Huge had already performed well at that point but we realised that in order to take the company to the next level it was important to introduce new shareholders who would play an active role in growing the company. It was important for us that these new shareholders could bring a combination of telecommunications, IT, market knowledge and entrepreneurship to the table," says Beamish.
"The options that the SA Hedge Fund has written are relatively unique. When we started negotiating with da Silva and Bulbulia in 2015, the Huge share price was less than 400 cents. On the day on which Duarte joined the board, the Huge share price was 530 cents per share. By our reckoning we felt that (at the very least) the existing management team could produce a rate of return on the Huge share equal to the company's weighted average cost of capital (WACC). We were informed that the WACC had been independently calculated at 17% and so we sat down with Duarte and Zunaid and negotiated a three year compound growth rate of 17% on our Huge shares and that is how we arrived at a strike price of 850 cents per share" he explains.
Bulbulia says that when Praesidium approached him and da Silva, it soon became apparent that Huge could provide both of them with a vehicle that furthered their individual entrepreneurial aspirations.
"There was an immediate meeting of the minds: Praesidium wanted new shareholders who could play an active rather than a passive role in the company and we wanted to be involved in ventures that would fulfil our own aspirations," says Bulbulia.
Both Bulbulia and da Silva have been actively engaged over the last several months in the acquisition of Connectnet. Connectnet is a telecommunications solutions company with a focus on growing its mobile payment offering.
"Duarte and Zunaid have committed significant time and effort since joining Huge in enhancing the value of the company. They have been instrumental in helping the company conclude agreements to acquire Connectnet", adds Huge Group CEO, James Herbst.
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