Huge Group’s top management has launched an explosive video which attacks the motives of Adapt IT’s top management related to an offer from Volaris to acquire the company.
Adapt IT has received a “firm intention” from Volaris to buy over 50% of the shares of Adapt IT for a cash consideration of R6.50 per share.
The Volaris offer followed only weeks after Huge Group made an offer to Adapt IT shareholders to acquire all of the issued Adapt IT shares.
Huge Group said it would fulfil the purchase by issuing 0.9 Huge shares for each Adapt IT share tendered to each shareholder that accepted the offer.
Adapt IT CEO Sbu Shabalala said they were “very interested” in the Volaris transaction as it gave shareholders a significant premium on the prevailing share price.
“It gives shareholders an exit price of R6.50 per share which was last seen in November 2018,” Shabalala said.
Commenting on the Huge Group offer, Shabalala said while it remains an option to shareholders, the Volaris offers makes more sense.
“Shareholders can take the Volaris cash offer, buy a Huge Group share, and still pocket some change – not only get 90%,” he said.
Huge Group is now questioning the motives of Shabalala and other Adapt IT executives, arguing it is not in the interests of Adapt IT shareholders.
Huge Group CEO James Herbst told MyBroadband Huge and Adapt IT are “better off together”, remaining listed, and creating more value for shareholders than 650 cents per share.
“Huge Group’s investment style is to back the jockeys and the management teams in place,” Herbst said.
Herbst dismissed Shabalala’s argument that Adapt IT shareholdings can take the cash and buy Huge Group shares, saying it appears to be self-serving.
“The Huge Group offer ensures that an Adapt IT shareholder retains exposure to the Adapt IT basket of assets,” he said.
“Shabalala, in turn, wants his shareholders to accept the cash offer. He doesn’t care what they do with the money afterwards.”
Herbst said in terms of the Volaris offer the choice is to either:
-Remain invested in Adapt IT but as a minority shareholder in a foreign owned private company, no longer listed on the JSE, or
-Accept cash of 650 cents per share sometime in the future.
A big concern, Herbst said, is that Adapt IT executives appear to have already signed irrevocable undertakings to support the Volaris offer.
“From what we can gather, Sibusiso Shabalala and the Tiffany Dunsdon & the Dunsdon self-managed super fund, as shareholders, are supporting the Volaris offer,” Herbst said.
“We question why these two shareholders would support the Volaris offer.”
Herbst also raised concerns about Shabalala’s recent comments about the capitalisation of Adapt IT.
On 11 March 2021, Shabalala told Business Day “we believe we’re sufficiently capitalised for our strategy at this point, and should we need further capital, we can go to the SA market.”
A month later, on 10 April 2021, he said “the challenge for management was always the capitalisation of the business to have enough money for our future strategy. This transaction promises to do that.”
Herbst said the comments made by Shabalala on 10 April 2021 seem to contradict his statements on 11 March 2021 – 30 days later.
Herbst further said it was important to look at the lease which Adapt IT has with Mshengu Property Holdings for its Johannesburg Campus.
Mshengu Property Holdings acquired the Adapt IT Johannesburg Campus from Inyosi 2 on 1 March 2019.
As a result of the change in ownership, the lease agreement signed by Adapt IT with Inyosi 2 on 19 December 2016 was automatically ceded to Mshengu Property Holdings.
According to the latest Mshengu Property Holdings company information it has only one shareholder and one director – Sibusiso Shabalala.
This was disclosed in Adapt IT’s financial results for the year ended 30 June 2019 which said Mshengu Property Holdings is 100% owned by the Mshengu Family Trust.
“Shabalala, the Chief Executive Officer of the group, is a trustee of the Mshengu Family Trust. Furthermore, Shabalala is a director of Mshengu Property Holdings,” Adapt IT said.
Over the last financial year, which ended 30 June 2020, Mshengu Property Holdings earned lease rentals of R34.62 million from Adapt IT.
“It is public knowledge that Shabalala’s 14,316,646 Adapt IT shares are pledged as security for asset backed finance, which one might assume is related to this property,” said Herbst.
“When we met with Shabalala on 18 November 2021, his Adapt IT shares were worth R37.5 million at a closing price of 262 cents per share.”
According to Herbst, these facts “lead one to question the motives” of Adapt IT’s management.
He said Adapt IT’s 12,500 shareholders should decide whether the Volaris offer is in their interest, or that of Adapt IT executives.
MyBroadband asked Adapt IT for comment about the Huge Group allegations, but the company did not respond by the time of publication.