Dimension Data directors are set to walk away with millions if the offer from Japanese NTT goes through in October.
The London- and Johannesburg-listed company yesterday surprised the market when it said that Japan-based Nippon Telegraph and Telephone Corporation (NTT) had offered £2.1 billion - or R24.2 billion - to buy out the entire company.
NTT is offering 120p per share, which is a 30% premium on the company's closing share price on average over the past six months. The announcement sent Dimension Data shares shooting higher to close at R14.12, a 22.04% gain on the day and a new 52-week high.
So far, shareholders holding 52% of the stock have given their irrevocable undertaking to vote in favour of the deal. Dimension Data directors have also pledged their shares in support of the bid.
Explaining the rationale behind the deal, Dimension Data CEO Brett Dawson yesterday told a conference call that being bought out by NTT was part of Dimension Data's plan to accelerate growth.
He says Dimension Data had realised that, in the next five years, it would need to partner with a company that would enable it to expand virtualised offerings. Being bought out by NTT, after being in exclusive talks with the Japanese company for some time, would enable the South African company to accelerate this vision, says Dawson.
Millions in payout
Collectively, board members have pledged the 1.06% of Dimension Data stock that they own, or 18.18 million shares, which are worth R250.98 million.
Chairman and company founder Jeremy Ord is the largest shareholder among the directors, with 0.72% of Dimension Data's issued shares. His 12.36 million shares will earn him £14.8 million - or R170 million.
Dawson has the second largest holding of the shares held by directors. Dawson, who took over running the company in 2004, has 2.18 million shares in the company, or 0.13% of its stock. He will walk away with £2.6 million, or R30 million.
Stephen Joubert, group executive of Global Solutions, has 0.9% of Dimension Data, or 1.5 million shares. His stake will earn him R27 million.
Among the other directors who will benefit are Patrick Quarmby, director of Corporate Finance, CFO David Sherriffs, and non-executive directors Rupert Barclay and Roderick Scott.
Although the directors will no longer be invested in the company, which raised concerns yesterday that they may lose interest in its performance, there is an incentive scheme from which they will benefit.
Ord says part of the deal includes the board's commitment to continue with the company. “It's about continuing the journey.”
Well deserved
Absa Investments analyst Chris Gilmour says the board has done a good job of improving profitability after the dotcom crash.
Last year, the company beat its margin target of 5% a year early. About four years ago, the company - once the darling of the IT world - promised to take margins to 5%.
In the year to September 2009, it achieved an operating margin of 4.9%, an improvement on last year's 4%. In 2005, the margin was 2.1%. The company also aims to have a 7% operating margin by 2015.
Gilmour says Dimension Data “made an awful lot of money for a lot of people” before the dotcom crash that wiped out several ICT companies. He says there were a number of institutional investors that really profited from owning shares in Dimension Data in the early 1990s.
While the company is not expected to see those heady boom times again, Gilmour says the board has done a good job, and the deal with NTT will take it to the next level.
He points out that the payout pales into insignificance when compared with what the directors earned when they sold shares before the crash. “They all made a pocket full of money.”
Arthur Goldstuck, MD of World Wide Worx, says the board spent a lot of time and energy on improving the company's reputation and operations after the share price plummeted during the dotcom crash. He says it has been a well-run company since then, and “one can't begrudge the directors what they have got out of this deal”.
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