Beacham ou t of the money

But strate­gic in­vestor re­mains in­ter­ested

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS

BEACHAM CAP­I­TAL has turned down its op­tions on 80m shares in strug­gling tech­nol­ogy group Beget Hold­ings be­cause the stock sim­ply is too far out of the money. In 2005 Beacham of­fered Beget a fund­ing life­line by agree­ing to an op­tion to sub­scribe for 200m shares stag­gered over a four-year pe­riod.

Beacham sub­scribed for 40m Beget shares at 3c/share at end-Au­gust 2005, an­other 40m at 6c/ share be­fore end-Au­gust 2006 and 40m at 12c/ share in 2007. While Beget’s an­nual re­port shows Beacham hold­ing just more than 40m shares, Beacham ex­ec­u­tive Alan Alt­shuler says a sig­nif­i­cant hold­ing of Beget shares is held by Beacham (though not un­der Beacham’s name).

Fin­week would then es­ti­mate Beacham-aligned en­ti­ties cur­rently hold 120m shares in Beget, equiv­a­lent to a stake of roughly 15% in the com­pany. While Beacham has con­verted its op­tions over the past two years at prices well in ex­cess of Beget’s share price, it seems the in­vest­ment com­pany didn’t have the stom­ach to go through with the four-year op­tion ar­range­ment.

Alt­shuler con­firms Beacham didn’t take up its last tranche of op­tions due at end-Au­gust this year. The last tranche of­fered 80m shares at 18c/share. Alt­shuler says the op­tion was “too far out of the money” with Beget cur­rently trad­ing be­tween 2c and 3c on the JSE.

Beacham would have forked out over R14m to take up the last tranche of Beget op­tions – a trans­ac­tion that would rep­re­sent in value more than half of Beget’s cur­rent R23m mar­ket cap­i­tal­i­sa­tion. To date, Beacham has in­vested al­most R8,5m into Beget via the op­tion ar­range­ment.

How­ever, Alt­shuler is quick to counter any sug­ges­tions that Beacham – which holds a 7,4% stake in AltX-listed con­ver­gent tech­nol­ogy com­pany Cel­com – has lost in­ter­est in Beget. He says Beacham in­tends stick­ing around at Beget, not­ing: “There’s a lot of in­ter­est­ing stuff hap­pen­ing at the com­pany.”

Of course, there are two ways of looking at Beacham’s re­luc­tance to con­vert its Beget op­tions. The bear­ish view is that ul­ti­mately Beacham feels Beget – which is now short of R23m in po­ten­tial fund­ing – isn’t go­ing to muster suf­fi­cient op­er­a­tional strength over the next few years to mean­ing­fully build share­holder value in the short to medium term.

The sec­ond view is that Beacham is com­fort­able

enough to stay on board Beget without com­plet­ing its fund­ing obli­ga­tions. That would mean Beacham be­lieves Beget – which has un­der­per­formed since list­ing in 2002 – can gen­er­ate suf­fi­cient cash flow from its re­vamped and newer tech­nol­ogy op­er­a­tions, such as SMM Telem­at­ics.

Pun­ters may also be won­der­ing whether Beacham could make up for the fund­ing short­fall by looking to fa­cil­i­tate closer co-op­er­a­tion be­tween Beget and Cel­com – which, broadly speak­ing, may have some com­ple­men­tary con­ver­gent thrusts.

But Alt­shuler says Beacham hasn’t given any spe­cial thought to get­ting Cel­com and Beget chat­ting.

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