LAWYERS WADE INTO ADAPT IT
Webber Wentzel will probe claims that CEO Sbu Shabalala is a bruiser. But investors are hoping this mess doesn’t spook suitor Volaris
You may not know much about Tiffany Dunsdon — a chartered accountant who has, until now, been comfortable working in the background — but last week she was catapulted into perhaps the worst corporate job going. Dunsdon, for her sins, has stepped into the shoes of Adapt IT CEO Sbu Shabalala, who took a three-month “leave of absence” amid a messy court case in which his estranged wife accused him of hiring five gun-toting goons to rough up her boyfriend, Sipho Nzuza, so badly that he ended up getting his spleen removed.
“It has absolutely been the worst week of my career,” Dunsdon tells the FM from Perth, where she has lived for 11 years. “There isn’t an emoji for the emotions I’ve gone through. It’s been really fraught — from shock, to disbelief, to intense stress.”
It’s unprecedented too: boards know how to respond to fraud, but tell them there’s a gangster in the corner office and they become as awkward as Carl Niehaus at a family gathering of “dead” relatives.
In Dunsdon’s case, it hasn’t helped that she counts Shabalala as a friend. Back in 2007, when she was CEO of the JSE-listed InfoWave Holdings, she engineered the merger with Shabalala’s fledgling Adapt IT, which created the technology firm of today.
It was a formidable partnership. Adapt IT’s stock soared, from 70c then, to R16.99 by October 2016. Then it crashed, diving to R1.14 by last September.
Clearly, the stock fell too far, as two suitors pounced on the bargain-priced Adapt IT. First, in January, the Huge Group offered R5.52 a share (a hostile bid) to buy Adapt IT, and then the Canadian software company Volaris trumped that, with R6.50 a share.
It was in this milieu — in the middle of a contested takeover bid, during a rollercoaster pandemic — that Shabalala’s wife Neo made out an affidavit saying that on May 1 she was confronted in her house by Sbu, who “instructed the gunmen to go into the master bedroom [where] they brutally assaulted Sipho”.
Dunsdon is sceptical. “The claims are uncharacteristic of his behaviour — he’s mild-mannered, very disciplined, and thoughtful about what he does. Which is why my gut response was disbelief. But I have to put the company’s preservation before my friendship.”
Significantly, Dunsdon reveals that the board has commissioned law firm Webber Wentzel to independently investigate what happened “to the extent that the matter affects the CEO’s relationship as an employee and director of Adapt IT”. After that, the board will decide “whether the CEO can return”.
This is a major shift. Shabalala might have decided to step back, but it’s clearly the board that will now decide how this plays out. The investigation, which began last week, should wrap up “soon, hopefully”.
Says Dunsdon: “The lawyers won’t be able to say definitively what happened. But they can investigate the facts, and advise us, based on a balance of probabilities, what the company’s best course of action will be.”
If the advice is that Shabalala can’t return, would she take the role full-time? “Yes, I would — it wouldn’t be my first preference, which would be for Sbu to clear his name and return ... but I would.”
Can you run an SA tech company from Australia? “Look, this business has been running remotely for some time, and I do normally travel to SA about six or seven times a year. Even with Volaris, we’ve never had a physical meeting — it has all been on video,” she says.
There is some urgency to the legal probe. Volaris has to put out a circular with its offer by June 4 — and, if there is no certainty, it could bin the whole thing. Dunsdon still expects the deal to happen.
“My instinct is that they will want to proceed, but I don’t speak on their behalf,” she says. “Of course, what has happened will detract from the investment case if Sbu doesn’t come back, but I don’t believe it’s fatal. Volaris are extremely astute. They’ll have done their risk assessment and looked at the sustainability of the underlying business and the revenue streams.”
Clearly, Adapt IT investors — 44% of whom have already given an irrevocable “yes” to Volaris — want it to happen. (Volaris needs only 75% of them to agree).
Officially, Volaris says it is allowing “due process to run its course”. Privately, the Canadians would be justified in being a little skittish about buying a company where the CEO is alleged to be a jawbreaker, in a country in a different time zone, where so many politicians have been exposed as bribe-hustling grifters.
Especially since Volaris says its philosophy is to “embrace stability, forever”, adding that “we are proud to say that we have never sold a business”.
But if the Canadians walk away, investors may consider accepting the second-best offer from Huge.
This would be a mistake, in Dunsdon’s view. “If the Volaris offer falls away, Adapt IT will continue as it is. It is clear that Huge’s offer undervalues the company. Even if Sbu doesn’t return, we’ve got a resilient business, with very supportive clients,” she says.
On Monday, Adapt IT released a valuation from Nodus Capital, which says the group is worth between R7 and R9.09 a share. Huge’s offer of R5.52 is “materially below that fair price range”. By this calculation, however, even Volaris’s R6.50 offer is below par.
Nonetheless, it is a cash offer on the table. Until the smoke clears, and we can see how deep the crater goes, investors will be hoping that Volaris doesn’t lose its appetite for the bid.
Volaris may well be a little skittish about buying a company where the CEO is alleged to be a jawbreaker
For much of last year, David Mabuza was as absent as a civil servant on full pay over lockdown could be. Yet the deputy president, answering questions in parliament last week, displayed rare humility in admitting that the government has messed up in its stuttering vaccine rollout, as phase two began in earnest only this week. Incredibly, he is the first and only politician in Cyril Ramaphosa’s government to do so, while health minister Zweli Mkhize continues to try to spin his way out of accountability for the failure.