Shareholders set for R6.4bn windfall in Westcon-Comstor sale deal

DATATEC’S share price climbed by 9.24 percent on the JSE following the news that it had completed the sale of its Westcon-Comstor business to Synnex for $830 million (R10.7 billion) and was considering returning $500m to shareholders.

The sale also includes its 10 percent of the remaining part of Westcon International.

Chief executive Jens Montanana said the transaction crystallised excellent value for its shareholders and they would revert to shareholders with their plans for the use and distribution of the cash.

“The strategic partnership between Westcon International and Synnex will provide significant growth opportunities for both businesses, while working together to serve vendors and customers globally,” Montanana said.

The international information and communications technology group first informed the market in April that it was considering selling the loss-making division, which accounts for 74 percent of its revenues. The other division, Logicalis, accounts for 25 percent, while Corporate, Consulting and Financial Services account for 1 percent of the group’s revenue.

The group said the proceeds of the transaction comprised $630m in cash on completion and up to $200m payable as a cash earn-out, subject to Westcon-Comstor business in North America and Latin America (Westcon Americas) meeting agreed gross profit performance targets.

The maximum consideration of $830m equates to an equity valuation of the total Westcon-Comstor division of $1.1bn. The board also intended to retain $130m for operational and working capital and expansion-funding requirements.

Datatec said the board would consider returning the majority of the remaining $500m to shareholders by way of share repurchases and/or a special dividend, but in the meantime the proceeds would be retained in dollars.

The group said the transaction provided an opportunity for Westcon International to partner with a leading global distribution business and enabled it to complete its transformation process and improve operating efficiency, thus enhancing its value.

Peter Takaendesa, a portfolio manager at Mergence Investment Managers, said the transaction represented a significant and earlier-thanexpected value unlock for Datatec shareholders.

“The market was expecting Datatec to receive Synnex Corporation shares and sell them down over a number of years, as well as dealing with a number of restrictive regulatory requirements that come with disposing of international assets.

“Fortunately, Synnex has found it attractive to pay cash to Datatec and this effectively brings the Datatec value unlock forward, instead of waiting for Westcon’s organic recovery,” Takaendesa said.

He said the deal valued Westcon group at $1.1bn equity value, which was higher than the whole of Datatec’s market capitalisation of $920m.

“This means the remainder of Datatec’s operations in Logicalis and Consulting are not reflected at all in the current Datatec share price.

“We conservatively value those assets at about $500m equity value, using the valuations of their regional peers as comparatives,” he said.

“Although Datatec’s shares have performed very well in 2017, we believe the market is still not fully pricing in the significant upside remaining in the shares over the next 1218 months,” Takaendesa said.