South Africa’s Dimension Data said on Friday it would pay R294-million to Worldwide Africa and issue 42.4 million shares to the group as part of a deal related to Worldwide’s stake in Plessey.
The news, which investors were expecting before year end, sent Didata’s savaged share price sliding as much as 6.9 percent, underperforming a one percent fall in peer Datatec and a three percent drop in European techs.
Under the deal — struck when tech valuations were sky high — black-led Worldwide Africa Investment Holdings had an option to sell its 51 percent stake in telecoms firm Plessey to Didata.
Didata owns the rest of the telecoms systems integrator.
To meet that option, which Worldwide has now exercised, Didata will pay Worldwide R375-million in cash and issue it with 42.4 million Didata shares, bringing the total cost of the deal to R485-million based on Didata’s Friday share price.
But in a separate but parallel deal, Worldwide is now buying back the stake in Plessey for R81,6-million. So Plessey’s shareholding structure remains unchanged, but at a high cost to South Africa’s biggest IT networking group.
”The net cash flow impact of the transaction for Dimension Data is a cash outflow of 293,838,082 rand,” Didata said.
Analysts had already factored in a big payment to Worldwide in their Didata figures, but were surprised that the deal was not all in cash, and included a share issue.
They had also not been expecting Worldwide to buy back the stake. ”The deal quantifies how much value has been lost,” one analyst said.
In its latest annual report, Didata said that if Worldwide exercised the option the price would be a fixed R462-million for just under 24 percent of Plessey plus a value it would determine for Worldwide’s remaining stake.
It said that figure would be based on Plessey’s value at September, 2002.
This means that at the total agreed price of R485-million for the 51 percent, which includes the value of the stock issue, the parties have valued the remaining 27 percent in Plessey at a mere R23-million.
At 1105 GMT, Didata was the most actively traded stock by deals in Johannesburg, and had trimmed its losses to 5.1 percent at 260 cents after hitting 255 cents earlier.
”It might be a combination of people asking why they are issuing shares instead of cash, and with the slightly dilutive aspect of the issue,” said one analyst, explaining the share fall.
Another said he was surprised Worldwide — a leading black-run group — had chosen to buy back the majority stake in Plessey. However, that was probably good news for Didata, whose all-male board has only just got its first black director.
Eight years after apartheid ended, South Africa’s big companies are still largely dominated by whites. But the government is trying to encourage a larger role for the black majority as part of what it calls an empowerment drive.
”It’s good the empowerment angle is maintained, because its basically the only one in the (Didata) group,” said one analyst. – Reuters