Huge defends R511m price tag

By Iain Scott, ITWeb group consulting editor

Johannesburg, 22 Jan 2008

AltX-listed Huge Group has defended the R511 million it is paying for its proposed acquisition of 59% of iTalk Cellular from Bebinchand Seevnarayan Trust.

Huge announced in November that it was paying for the acquisition through the delivery of 93 million Huge shares at 550c a share.

iTalk is a consumer and small to medium enterprise-focused cellular service provider which holds an MTN SA service provider licence agreement.

"A story that is going to come out into the market, and it has surfaced a little bit, is the cost of acquisition of iTalk," says financial director James Herbst.

"It's not an acquisition. It is a merger where we retain joint control of the business. And then the argument is, 'Who paid whom?'

"If we look at when we started negotiating with iTalk, TelePassport, if we can use that as the reference point, had a value of R126.3 million, and we were negotiating. So what price do you peg then, at that point in time?

Overpaid?

"So when one looks at it from a merger basis, in effect what the Seevnarayans have done is they have given us R550 million to R600 million as a value on our business. It's who's paid whom here, who's got the good deal?

"Have we overpaid? No, we haven't overpaid. This is a merger of interests. And when we started we had an implied market cap on TelePassport of R126 million. We've now been given R600 million for that."

He adds that even with the subsequent addition of Centracell to Huge Group, the implied market capitalisation would have been only around R200 million.

"A lot of people have said, 'Oh, you've paid R511 million for these guys and that's an absolutely ridiculous price.' No, we've merged, and we've delivered stock that has a value of R511 million. But you go and back test the thing and that value comes to probably around R180 million."

Herbst adds: "We have not merged with iTalk on the basis of iTalk. We haven't merged because it's iTalk and because of what it has delivered up until now." He says the merger was agreed to on the basis of the "upside inherent in it. And it's absolutely enormous."

The group is expected to announce some high-level appointments within the next few days that will have a bearing on its strategy following the merger.