Mustek takeover approved with conditions

The Competition Tribunal has conditionally approved the proposed transaction in which Novus Holdings intends to acquire additional shares in Mustek.

This comes after Novus acquired over 35% of Mustek in November last year, triggering a mandatory buyout offer.

The Competition Commission gave its stamp of approval at the end of February, with conditions, recommending that the Tribunal greenlight the transaction.

According to the Commission, it was unlikely that the transaction would substantially lessen or prevent competition in any market.

However, to address employment-related public interest concerns, Novus and Mustek agreed to a two-year moratorium on retrenchments. They would also give preferential employment conditions for employees Mustek retrenched before the transaction.

The Tribunal said it approved the proposed merger subject to employment-related public interest conditions.

Novus is controlled by A2 Investment Partners and the Tribunal noted that Novus operates a commercial printing, manufacturing, and packaging business.

“Among others, it owns a small publishing offering mainly in the commercial and consumer space and a media supply chain management entity, with local community newspapers,” the Tribunal said.

The Competition Commission previously highlighted that Novus also provides a range of training services and holds investment interests in various industries, such as sports betting, construction, agriculture, and technology.

Mustek, on the other hand, is primarily active in the information and communication technology sector.

“In particular, it assembles and distributes personal computers, complimentary ICT products, services and software. Its distribution portfolio includes popular laptop brands, gaming equipment, printers, desktops and other related hardware,” the Tribunal said.

Under the terms of the transaction, shareholders who elect to sell can choose between receiving cash, shares, or a combination of cash and shares.

Novus has offered a price of R13 per Mustek share. Mustek was trading at close to R14 by the time of publication.

Alternatively, shareholders can elect to sell for R7 plus one Novus share, or trade one Mustek share for two Novus shares.

Novus was trading at R7 at publication time.

The company delivered an irrevocable unconditional guarantee issued by Investec for the maximum amount payable under its mandatory offer, which is R335 million.

Novus noted that they must obtain several approvals before the deal can proceed, including regulatory approvals from the Competition Tribunal, and potentially the South African Reserve Bank and JSE.

The long stop date for obtaining the necessary consent is 31 July 2025.

If the deal’s suspensive conditions are not fulfilled by then, Novus said it would sell some of its Mustek stake so that its shareholding becomes less than 35%. It said it would follow the Takeover Regulation Panel’s directions in this regard.

Novus also reported that it had received irrevocable undertakings from three Mustek shareholders comprising approximately 20.29% of all issued shares that they would reject the buyout offer.

These shareholders are the DK Trust, Mustek managing director Neels Coetzee, and Mustek group chief executive officer Hein Engelbrecht.

Run-in with the regulator

The Takeover Regulation Panel issued a scathing ruling in February that chastised the merger parties for not initially being forthcoming about their deliberations leading up to the proposed deal.

It also revealed that Hein Engelbrecht, along with Michael Kan, were trustees of the DK Trust.

“The DK Trust is deemed to be a concert party of Novus in relation to the mandatory offer,” the regulator ruled.

Novus’ acquisition of a sizeable stake in Mustek and subsequent mandatory offer comes after Umthombo Wealth chief investment officer Alex Duys said the company could become a target for corporate action.

Duys and Protea Capital Management CEO Jean Pierre Verster previously said that Mustek was a good investment opportunity because it is a good company that is undervalued.

Mustek’s low valuation also makes it an acquisition target. Many companies may see it as an opportunity to buy the distributor at a bargain price.

While Mustek’s results have suffered in recent years, analysts expect this to improve in 2025.

They explained that the 2020 lockdown was good for Mustek as the work-from-home revolution forced companies and workers to upgrade their home technology.

Mustek’s results should improve as the upgrade cycle kicks in following this buying frenzy.

Duys explained that Mustek previously took pain because it overstocked on renewables. Eskom’s load-shedding reprieve dropped demand for these products.

However, there was still demand for these products, and they were still selling them — albeit at lower margins.

Mustek’s management said they are actively addressing the working capital issue, which will release a lot of cash.

The higher cash flow will reduce the company’s debt and interest payments. In turn, earnings will increase. This is expected in a year or two.