Johannesburg - Dimension Data's (Didata's) proposed take-out of the minorities of Singapore-listed Asian subsidiary Datacraft Asia was all part of the clean-up that previously saw Didata also buy out the minorities in Internet Solutions and Plessey.
Long-standing Datacraft chairperson Patrick Quarmby, also director of corporate finance on the main board of Didata, said the group was undertaking such a clean up in areas of the business where it saw value.
Although there are a host of regulatory requirements that the transaction must fulfill, the most important milestone would appear to be achieving buy-in from Datacraft shareholders.
Given that the shareholder vote will represent a special resolution, 75% of shareholders (other than Didata, which owns just over 55% and will be precluded from voting) would need to vote in favour of the transaction.
Quarmby said it hoped shareholders believed the premium - a 34.3% premium to the share price on closing yesterday, and a 33% premium to the average share price over the past three months - was a fair price, as Didata believed this was the case.
He said Datacraft share volumes had decreased significantly. This was exacerbated when the counter fell out of the MSCI Singapore Index in mid-2006, with average daily trading volumes down about 92%.
So shareholders would have to weigh the current market conditions against the premium that Didata is offering.
Quarmby said Didata had acquired the listed entity when it bought the majority stake in Datacraft in 1997. If it could have used the listed vehicle to raise capital, it would have done so (the last time it did so was in 2000), but the price had simply not performed, nor would Didata have wanted to dilute its stake.
The group's flexibility was also limited given that it had been dealing with minorities.
Perhaps the biggest issue for it, Quarmby said, was the fact that senior staff incentive schemes were linked to the performance of the share price, and this was not proving to be an effective mechanism to reward them given the performance of the share price.
Although Didata has not yet officially determined how it will structure their incentives going forward, Quarmby said these would be aligned to the interests of the broader group.
Datacraft Asia would be delisted should the transaction go through, eliminating those listing additional costs.
Share offer
Didata will retain the Datacraft Asia brand and has no plans to change this in the foreseeable future, Quarmby said, although this would be reviewed from time to time in conjunction with Datacraft management.
It also doesn't intend on changing the company or undertaking any staff retrenchments, given that the two had already been aligned for some time.
Didata is offering Datacraft shareholders $1.33 a share (part in cash and part by way of a capital distribution), for the 44,9% stake that it doesn't own, bringing the total offer to $276m (or R2,1bn). It is paying in a mixture of shares - 136m shares will be issued, an 8.7% increase in the issued share capital - and cash.
It hopes to raise about £'60.2m (about R913m) through the share offer, which is fully underwritten by Venfin and Allan Gray.
Both institutions have been ardent supporters of Didata for the past number of years, with Venfin currently holding 21.3% of the shares, and Allan Gray a 22.9% stake.
When Venfin lent $100m to Didata some years ago in the form of a convertible bond - since converted to equity - it said it had assured management that it would not go above a 25% stake in the group. Should it be required to take up the full issue, Venfin would own more than this.
However, Quarmby said the 25% mark was not a "magical number" for Venfin, it had simply wanted to reassure Didata that it had no intention of seeking a position of control.
However, the parties had an extremely good relationship and Venfin was not trying to obtain control of the company, he said.
Didata had $395m (roughly R3bn) in cash at the end of the half-year to May. So, it seems it could have funded the Datacraft minority deal entirely from available cash resources.
Quarmby said this may have been the case, but the group had learnt from previous bear markets, and preferred to hang on to a cash cushion just in case.
- Fin24.com