Former top equities analyst and senior banker Duarte da Silva and former MTN South Africa CEO Zunaid Bulbulia are set to invest more than R125m buying significant minority positions in listed telecommunications company Huge Group.
Praesidium Capital Management, acting in its capacity as general partner of the SA Hedge Fund En Commandite Partnership (a significant shareholder in Huge Group), has signed call option agreements with the two businessmen, who both serve as directors.
They have been given the option to purchase ordinary shares from Praesidium at a price of R8,50/share, exercisable on 28 February 2019. The value of the shares is R63,8m each, for a total of R127,5m. A third director, the long-serving Vincent Mokholo, has reached a deal to buy shares worth R4,3m.
“This announcement is significant in that it is one of the large shareholders of the company and not the company itself that has written the call options,” said Huge Group in a statement.
It added: “What is very noteworthy is that the price at which these 15m shares will change hands is R8,50/share. This is a premium to the closing price on Friday of R8/share and a significant premium to the price of a Huge share on the date on which Da Silva joined the company.”
Mike Beamish, founder of Praesidium Capital Management, said negotiations with both Da Silva and Bulbulia commenced more than a year ago, prior to their appointment as directors.
“We approached them 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,” Beamish said.
“Huge had already performed well at that point but we realised that 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.
“When we started negotiating with Da Silva and Bulbulia in 2015, the Huge share price was less than R4. On the day on which Duarte joined the board, the Huge share price was R5,30. 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 R8,50/share.”
Beamish said the agreements couldn’t be reached earlier because Huge had consistently been trading under cautionary, or had been in a closed period. Listed company directors are not permitted to trade in a company’s shares while the company is under cautionary or in a closed period, he said.
Huge Group CEO James Herbst said that when Praesidium approached Huge with its plan to solicit active shareholders, the idea was compelling. “However, the company did not have the ability to structure the kind of partnership Praesidium was envisaging. Praesidium took the lead in creating a mechanism in which it could attract active shareholders without giving away future returns.”
Huge Group’s share price was trading unchanged at R8 on Tuesday afternoon. The counter has added more than 90% in the past year. Over three years, it has returned a staggering 1 329%. — (c) 2016 NewsCentral Media
