Twists in the tale
Volaris’s cash offer for Adapt IT seems more appealing than the Huge bid, but recent moves in the share price raise questions
ýIs the comeback story at tech conglomerate Adapt IT about to take another twist?
The share price movement after last week’s buyout offer from USbased tech group Volaris will certainly be the topic of some conjecture by market watchers.
To recap: Adapt IT has endured a hectic six months. Its shares, once coveted by small-cap pundits, started rebounding from less than 120c on the release of a much better-than-expected trading statement at the end of September 2020.
In early February, when the share cleared 400c, niche telecoms group Huge pitched an allpaper unsolicited offer to acquire Adapt IT shares. It entailed a swap ratio of 0.9 of a Huge share for every Adapt IT share tendered. The swap ratio is based on a reference price of 613c for a Huge share and an implied price of 552c for an Adapt IT share.
Last week, Volaris, a subsidiary of Toronto Stock Exchange-listed Constellation Software, made a cash offer of 650c a share for
Adapt IT. The pitch has been met with far more enthusiasm than the Huge scrip offer, and already around 22% of Adapt IT shareholders — including CEO Sbu Shabalala, who holds a 10% stake — have
irrevocable undertakings to support the Volaris tilt.
Many market watchers feel the Volaris offer will appeal to Adapt IT shareholders, effectively allowing them to cash in early on the group’s growth potential.
But recent share price movements raise questions.
For a few days since the news of the Volaris deal, Adapt IT shares have traded at 640c — a mere 1.6% away from the Volaris offer price. Investors buying shares at these levels would effectively be losing money on the Volaris buyout offer, bearing in mind that it could take months to finalise the deal.
The 640c price would also be ignoring the risk of the deal not being consummated, or being delayed (as has happened at Metrofile, another tech company with an offshore suitor).
Keith McLachlan, an investment manager at Integral Asset Management, reckons a number of scenarios could be at play here.
First, some investors could be banking on a higher offer or another bidder emerging. But an Adapt IT spokesperson says the company is not aware of such a development.
Second, an investment entity might not be fretting about the arbitrage issue, but simply be scooping up shares to ensure more votes for or against Volaris.
McLachlan also doubts that Huge would raise its offer, contending that if it did so too aggressively the transaction might turn out to be a reverse takeover.
Huge still backs its offer, with CEO James
Herbst encouraging shareholders to take into account the “time value of money” and the capital gains tax Volaris’s cash offer would attract.
It is conceivable that investors might be buying into Adapt IT to remain on board an unlisted vehicle after Volaris has taken control of the company and delisted it. There could be punters who believe the involvement of Consteloffered lation and Volaris could result in a big long-term boost for Adapt IT if it leverages off the global credentials to win new business in SA and Africa. The possibility of Adapt IT making valuable acquisitions under the guidance of Constellation/Volaris also seems a credible one.
Adapt IT has said Volaris will