Strange twist in R335-million Mustek takeover

The Takeover Regulation Panel (TRP) has ordered Novus Holdings to withdraw and resubmit its offer to acquire Mustek, one of the oldest computer hardware distributors in South Africa.

This comes after the TRP unconditionally approved Novus’ firm intention announcement for release on 15 November 2024. Novus acquired over 35% of Mustek in November last year, triggering a mandatory buyout offer.

“Regrettably, Novus hereby advises shareholders that the TRP has unilaterally withdrawn its approval of the firm intention announcement on grounds with which Novus strongly disagrees,” the company stated.

“Pursuant to such withdrawal, the TRP has directed Novus to publish a revised firm intention announcement within 20 business days.”

It notified shareholders about the development on the JSE News Service on Friday after markets closed for the weekend.

“Novus acknowledges the unfortunate impact and confusion which these developments may cause,” the company said.

“Accordingly, Novus intends to appeal against the aforesaid ruling of the TRP on an urgent basis, on the grounds that it was improper and will provide an update to the market as soon as it is able to do so.”

Novus said it remained fully committed to the mandatory offer process.

Earlier in March, the Competition Tribunal conditionally approved the proposed transaction after the Competition Commission gave its stamp of approval at the end of February.

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.

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 R13.50 by market close on Friday.

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.

The long stop date for obtaining the necessary regulatory approvals 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.

Run-in with the regulator

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.

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.