Problems with South African IT giant takeover

The Competition Commission has recommended the Competition Tribunal approve Novus’ purchase of JSE-listed Mustek for R335 million. 

However, the Takeover Regulation Panel (TRP) has thrown a spanner in the works by ruling that the DK Trust, a shareholder in Mustek, is acting in concert with Novus. 

Novus announced on the stock exchange news service that it disagrees with the conclusion reached by the TRP. 

It is unclear how this will impact the deal or the Competition Tribunal’s view on the transaction. 

Novus made an offer to buy Mustek in November 2024 after it hit the mandatory buyout offer threshold of 35% of the company’s shares. 

The deal has since been under scrutiny by the Competition Commission and the TRP, with the commission conditionally recommending that the transaction be approved by the Competition Tribunal. 

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

It explained that Novus primarily operates as a commercial printing, manufacturing and packaging business. 

It also provides a range of training services and holds investment interests in various industries, such as sports betting, construction, agriculture, and technology.

The target firm, Mustek, is primarily active in the information and communication technology (ICT) sector. 

Mustek assembles and distributes personal computers and complementary ICT products, services, and software in South Africa. 

Its distribution business also encompasses the distribution of renowned laptop brands, gaming equipment, printers, desktops, and similar hardware.

To address employment-related public interest concerns, the merger parties have agreed to a two-year moratorium on retrenchments following the merger implementation date. 

As the Competition Commission was scrutinising the deal, Novus began engaging with the TRP as to whether or not the DK Trust should be regarded as a concert party in the transaction.

The DK Trust, alongside Mustek’s managing director Neels Coetzee and CEO Hein Engelbrecht, previously told Novus that it would reject the buyout offer. 

This initiated the engagements between Novus and the TRP. 

Late on Tuesday, 25 February, Novus informed shareholders and the market that the TRP had determined the DK Trust is a concert party of Novus with regard to the offer to buy Mustek. 

“The TRP has determined that in furnishing Novus with a written undertaking to not accept the Mandatory Offer as well as other factors detailed in the TRP Ruling, the DK Trust became a concert party of Novus,” the company’s statement said. 

Following this ruling, Novus and its related parties are now, in aggregate, the beneficial owners of 31,854,866 Mustek shares, comprising approximately 55.36% of the issued share capital of the company.

The TRP’s decision rests on the fact that the DK Trust provided Novus with a “waiver undertaking” regarding the mandatory offer.

This meant that DK Trust would not accept the mandatory offer from Novus, causing DK Trust not to sell its shares to Novus under the mandatory offer.

The TRP stated that the waiver agreement between Novus and the DK Trust was crucial to allowing Novus to move forward with the Mustek takeover, and the facts did not support it as a coincidence.

The TRP noted that the DK Trust waiver lowered the financial guarantee Novus needed to provide by R123 million, and the evidence suggested that this was essential for Novus to make the takeover deal happen.

Based on active discussions, meetings, and agreements between Novus and the DK Trust trustees, the TRP concluded that the DK Trust was acting in concert with Novus.

“Novus fundamentally disagrees with the conclusions reached by the TRP in this respect and will consider its rights and/or remedies,” the company said.

Novus said that it may apply to the Takeover Special Committee for a hearing regarding the TRP Ruling within five business days. 

However, the company has been advised by the TRP that the Takeover Special Committee is not currently constituted. 

Accordingly, should Novus wish to appeal or review the TRP Ruling, it will need to approach a High Court of competent jurisdiction.

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