In what appears to be conciliatory terminology, the independent board of JSE-listed technology company Adapt IT has said that while the offer of R6.50 by Canadian firm Volaris for Adapt IT is unfair, it is reasonable to Adapt IT shareholders.

This was announced in a joint circular issued on Tuesday by Adapt IT and Volaris. The circular contains details of the rationale for the offer by Volaris, the opinion and recommendation of the independent board, and the notice of the general meeting of Adapt IT shareholders.

The board had previously said that the offer from Huge, which was unsolicited and is viewed as hostile by the company, was unfair and unreasonable. However, it has engaged Nodus Capital, the independent expert appointed to report on the fairness of the Volaris and Huge offers, to provide a revised opinion on the Huge offer.

This comes after Nodus Capital concluded that the fair value range for Adapt IT is between R7.00 and R9.09 per share. As a result, Huge revised its offer upwards last week. 

The telecommunications holding company had offered 0.9 Huge shares per Adapt IT share, equating to roughly R5.52 per Adapt IT share. Subsequent to the Nodus valuation, it revised its offer to 1.37 Huge shares per Adapt share. 

According to Huge Group CEO James Herbst, this values each Adapt IT share at R9.09, placing its offer at the upper limit of the Nodus valuation.

The independent board disagrees, arguing that this ratio values each share at R7.21. 

It all depends on which valuation one places on Huge’s share price — the ruling price or intrinsic value calculated by Nodus. Both Huge and Adapt IT have seen massive share price revaluation over the past year, with Huge rising 30% in the past six months and Adapt IT rising 181% at the same time. Both companies have argued that their intrinsic value is higher than that reflected by the share prices, which were dampened by investor disillusionment with small-cap stocks. 

However, Nodus calculated both companies’ fair value at levels higher than their trading prices. It is these valuations that Huge has elected to use — both for itself and for Adapt IT — for consistency’s sake, says Herbst.

But in its calculation, the independent board elected to use the price at which Huge was trading the day before it revised its offer — R5.98c.

For Adapt IT’s 12,500 retail shareholders who have to vote at the general meeting scheduled for 30 June, the calculations must be somewhat mind-boggling. 

But their views and votes count. 

The circular notes that the Adapt IT and Volaris deal has garnered irrevocable undertakings from shareholders holding 47.7% of Adapt IT shares. These include those from Black Sheep Master Fund (22.8%), Sbu Shabalala (10.4%), Nedgroup Investment Advisors (5.1%), Tiffany Dunsdon and the Dunsdon Self-Managed Super Fund (3.3%), and Rubistar (2.8%). 

This is just under the 50% threshold for the scheme of arrangement (the deal, in other words) to become unconditional.

Volaris has until seven days before the general meeting to increase its offer. Some shareholders may be holding out for this possibility. DM/BM