Huge Group CEO James Herbst on Tuesday rubbished a claim that the company used its share buyback programme to manipulate its share price higher ahead of its bid to acquire fellow JSE-listed firm, software services group Adapt IT.
News24 reported late on Monday that Huge Group is being probed by the Financial Sector Conduct Authority (FSCA) after a shareholder lodged a complaint against it at the regulatory body. According to the report, the complaint was filed by Kerem Aksoy, the managing member of a US-based investment advisory firm called Glacier Pass Management.
Huge was reportedly actively buying its own shares through December and into January – so much so, that most trades in the (often relatively illiquid) share were because of the buyback programme.
The insinuation is that Huge Group manipulated the share price, which rose by about 40% over a six-week period, to make it more feasible to launch its all-share offer for Adapt IT.
According to the News24 report, Aksoy has also filed a complaint with the JSE and has asked an independent board appointed by Adapt IT to consider the Huge Group offer to probe whether Huge was “artificially inflating or manipulating” its share price ahead of the offer being made public.
But Herbst told TechCentral on Tuesday morning there is nothing sinister about the share buyback programme or the trades in December and January.
‘Nothing to do with Adapt IT’
“We have had this repurchase programme in place for over a year and we have been attempting to complete it. It is still not completed. The repurchase programme has nothing to do with Adapt IT. It is an exercise in repurchasing shares that trade below intrinsic value, which we believe is in excess of R8.50/share,” he said.
He added that Aksoy is suggesting that Huge Group has implemented what is called a “market corner”.
“A market corner arises where a person, or group of persons acting in concert, buys up a substantial volume of a security, knowing that other market participants would be forced to buy from him, or them, at a higher price. A similar practice is known as an ‘abusive squeeze’, and arises where a person has a dominant position in the market and then seeks to use his or her control or influence to cause a shortage and so to create artificial prices,” Herbst said.
“Having a substantial influence over supply, and thereby extracting elevated profits, is not of itself abusive; the abuse lies in cornering the market and then using it to distort the market. The key phrase is ‘knowing that other market participants would be forced to buy’. Huge Group is not forcing Adapt IT shareholders to accept the Huge offer.” — © 2021 NewsCentral Media
