Allied Electronics Corporation (Altron) is optimistic shareholders will support its move to reabsorb and delist subsidiaries Allied Technologies (Altech) and Bytes Technology Group (BTG), as it seeks to simplify its group structure.
Speaking during a conference call yesterday, Altron CEO Robert Venter said the group would seek to acquire the 38.2% issued share capital of Altech and the 42.3% share capital of BTG, in an all-share deal valued at R4.8 billion.
An all-share deal would not affect the group`s capital, which would remain available for acquisitions and internal capitalisation, Venter explained.
In terms of the transaction, Altech minority shareholders would receive 1.7 Altron participating preference shares for one Altech share, and 0.43 Altron participating shares for every BTG share. This reflects a 29% premium over the 30-day volume-weighted average price at 7 August.
Venter stated that, while he could not comment on how shareholders would vote, feedback from some parties has been positive, adding that a 29% premium is a "fair" offer.
Altron CFO Diane Radley said she expected minorities would be "relatively happy" with the proposal, and commented that an all-share deal holds various advantages over paying shareholders in cash.
Adding to this, Venter stated that a cash buyout would have meant certain tax liabilities for shareholders, as well as an erosion of cash for the group, which it aims to use for growth and internal capitalisation. Current capital allocation is not optimal, he said.
Shareholders wishing to withdraw their investment from the group could do so by selling their interests in the open market.
Establishing synergy
He pointed out that the transaction would simplify the corporate and operating structures of the Altron group, especially as convergence in the market often requires input from both Altech and BTG. The deal would also position the group to offer a more cohesive approach to tenders and a more coordinated approach to clients.
However, Venter stressed that the subsidiaries would not be merging under the transaction and would retain their individual management structures and branding. He also stated that there would be no asset movement between the two entities, but - under the new structure - there would be more flexibility if such a decision were to be taken in future.
An analyst, who asked not to be named, comments that the transaction is a "pretty good deal", offering fair value to Altech and BTG minorities. As such, he expects that shareholders will support the deal.
"At the Altron-level, it optimises the group structure and capitalisation. In the short-term, I expect it to be value- and earnings-neutral, but in future it will likely become value- and earnings-generative," he says.
The analyst notes it is difficult to say what type of acquisition targets the group could be looking to utilise its cash pile for, as it is diverse. "But I expect that it could be in the Altech area, maybe in the mobile broadband space."
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