BEE deal revised for tender reasons
• New terms for the BEE transaction will make the company become largest listed empowered IT group in SA
EOH has revised its BEE deal with investment group Lebashe, which at a stroke will bump up its black shareholding to more than 50% from 30.2% now. This will be crucial to further business with the public sector, despite the fact that its contracts with the state have drawn allegations of corrupt practices over the past 18 months.
EOH has revised its BEE deal with investment group Lebashe, which at a stroke will bump up its black shareholding to more than 50%, from 30.2% now.
This will be crucial to further business with the public sector, despite the fact that its contracts with the state have drawn allegations of corrupt practices over the past 18 months.
It also makes the company the largest listed empowered IT group in SA, which, said incumbent CEO Zunaid Mayet, “massively” strengthens its “competitive positioning across all market segments”.
A tie-up with Lebashe, which has been fighting its own PR battle with UDM leader Bantu Holomisa over its involvement in BEE deals concluded with the PIC, was first announced in March. But revised terms will see Lebashe buy shares in EOH to the value of R1bn at a 10% discount to the prevailing average.
Initially it proposed an equity investment of R250m and a R3bn debt facility. This falls away. Lebashe chairman Thabo Mahloele said that EOH’s growth “aspirations” would be “best served by a significant equity injection, as opposed to the previously proposed R3bn debt funding facility”.
Lebashe will use its own resources to subscribe for the shares, releasing EOH, whose cash situation is the subject of much concern in the market, from vendor financing the transaction. Included in the deal is the creation of 40-million Ashares, which EOH will issue to Lebashe for R1.
These will be used to lock Lebashe in for a period of five years, during which time the Ashares will receive 15% of any dividends paid over the life of the deal. After that, the A-shares will be converted into normal stock. EOH and Lebashe have agreed to a “hurdle price” of R90 per A-share. In other words, Lebashe will share in upside to the EOH share price once it tops R90. While allegations of impropriety have never been proven, investor unease over corporate governance is partly behind a two-year share price plunge. EOH stock hit a low of R25.20 in June this year, having peaked at R178 in August 2015.
But its shares have since rallied almost 60%, helped by this month’s appointment of former MTN and Barclays executive Stephen van Coller to the position of CEO for the EOH Group, the holding company for what will become two separately functioning businesses: historical IT business EOH and Nextec, its industrial technologies arm.
According to Bloomberg, two analysts who cover the stock both have buy recommendations on the share: Avior Capital’s Ruhan du Plessis has a target of R62.68 while Prescient’s Muneer Ahmed has R69.
EOH is still thrashing out the detail on the financial effect of the deal and may delay the issue of a circular to shareholders beyond an initial planned date of August 10.
Its shares closed 2.3% down on Monday at R40.30.