Novus Holdings, a listed printing and packaging company, last week surprised investors by announcing it was making a bid to buy technology distributor Mustek.
Novus has quietly been building a position in Mustek, and on Friday revealed that it had acquired more than 35% of the tech firm’s equity, requiring it under South African law to make a mandatory offer to other shareholders.
Novus, which is led by CEO André van der Veen, confirmed it will now do just that by offering other Mustek shareholders:
- A cash consideration of R13/share (below the closing price on Thursday of R13.67/share); or
- A cash amount of R7/share plus one ordinary share in Novus for each Mustek share held; or
- Two Novus shares for each Mustek share tendered.
Often approaches such as this one result in the target firm being delisted. But Mustek CEO Hein Engelbrecht, who has said he won’t sell his shares, told TechCentral by phone on Friday that the intention is for the company to remain listed on the JSE.
Engelbrecht, Mustek MD Neels Coetzee and the DK Trust – a trust created by late Mustek founder David Kan – have said they will not accept the mandatory offer from Novus as they wish to remain invested. They do, however, support the transaction and together hold 11.7 million Mustek shares, or 20.3% of the total.
But why is a printing and packaging company, which recently bought several community newspapers from Media24, interested in a technology company. Some analysts TechCentral spoke to on Friday expressed surprise at the move, saying there is no real obvious synergy between the companies.
TechCentral editor Duncan McLeod asked Van der Veen about the rationale for the proposed deal, and how it came about (the conversation has been edited for clarity).
Duncan McLeod: Why does Novus want to buy Mustek?
André van der Veen: In these kinds of things, you can always try and craft some sort of motivation about synergies, but I’m not going to do that. There are some touch points with Novus and Mustek, mainly on the education side, because they do a lot of education training. But [the main reason is] I have known Hein [Engelbrecht] for 25-odd years or more. And when we looked at the Mustek share price, it seemed to be good value, and it has a trusted management team that’s been around for years. And for Novus, some of our shareholders have been encouraging us to do transactions to make Novus more of an investment holding company.
So, when this opportunity arose, we said, ‘Okay, maybe this is the opportunity that we can use to diversify. We are not diversified at the moment; we have education and printing, although we do print for our education business. So, again, there’s some synergy there, but I don’t think the deal is being driven by synergies.
I think it’s just a good investment opportunity, an opportunity to work with a management team that I know and have trusted for many years. It’s a brand that is really entrenched in South Africa. We like working with good management teams, and we think that we can add some value – and it’s an investment opportunity for us.
DM: So, will this be the first of a number of deals as you look to become more of an investment holding company?
AvdV: We are opportunistic investors. We don’t have a sector view, or anything like that. If an opportunity to buy an asset arises, the debate is whether we should put it in Novus or not. There was a view that Mustek is a big enough asset for us to put into Novus, and it’s a stable asset, and what we have in Novus are assets that are stable and in a good market position, etc. So, would we put an asset into Novus that has an unbelievable risk profile, was in an industry which we don’t think would suit Novus shareholders? No. But this asset, I think, just by its nature and the time that it’s been around and its position in the market, does suit that type of profile.
DM: I haven’t interrogated the share components of the offer, but just looking at the cash consideration of R13/share, it looks a little low. Are you going to have to up your offer to get this over the line?
AvdV: The way the regulations work in South Africa is, if you acquire more than 35% of a business, then you’re obliged to pay the highest price that you paid for the shares in the preceding six months, which was R13. So, to entice shareholders who want to sell their shares, but who feel the price is too low, we’ve offered an alternative, which is you can get two Novus shares for every Mustek share you own.
So, in broad terms, the Novus share price was trading at around R8 when we made the offer. As a Mustek shareholder and you want to sell, you can take R13 in cash, or you can elect to receive two Novus shares, which probably gets you closer to R16. And even R13 is much higher than Mustek has been trading at for the past 12 months.
But we’re not saying, take the offer or don’t take the offer. We are fulfilling our mandatory requirements in accordance with the Companies Act. We also think it’s attractive for shareholders if they wanted to swap into Novus shares: they can sell down Mustek, but not completely, and participate in a broader portfolio of assets rather than just being exposed to Mustek.
DM: I understand that you plan to keep Mustek listed.
AvdV: We want to keep it listed, yes. We don’t want to force shareholders out or anything like that. If you want to stay in and stay a Mustek shareholder, we are very happy that you do that. If you want to swap it into Novus, we’re very happy to do that – and will even pay cash.
DM: Do you issue new Novus shares to conclude the transaction?
AvdV: Yes, we’ll swap a Mustek share for newly listed Novus shares.
DM: What does the Companies Act say regarding mandatory offers for this to proceed? Do a certain percentage of the shareholders have to vote in favour?
AvdV: We already own more than 35%. We have no minimum requirement. We are obliged in terms of the Companies Act to make the offer, but there is no minimum acceptance level or anything like that.
I think the intention of the act is that if there’s a new significant shareholder in a company, you need to give minority shareholders the opportunity to sell their shares at a price so they can make a choice whether they want to stay in with the new shareholder or not. It’s a procedural matter more than anything else, and there are no minimum requirements. – © 2024 NewsCentral Media
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