Datatec investors set for big bonanza
The share spiked more than 8% on news that the Westcon-Comstor Synnex transaction had been completed
The R10.8bn cash sale of half of Datatec’s Westcon-Comstor business, which sent the stock 8% higher on Monday, will not be the final transaction in the group’s value-creation drive, says CEO Jens Montanana.
Datatec was considering other transactions — on the buy side and on the sell side — to maximise shareholder value, Montanana said on Monday after the completion of the $830m sale of the Westcon-Comstor business in North America and Latin America to US-based Synnex Corporation. Synnex also acquired 10% of the remaining part of Westcon International.
Datatec’s share price was 8.25% higher at R60.90 at the JSE’s close on Monday, nearing a 12-month high, as shareholders eyed a substantial dividend.
Shareholders are likely to receive $500m (R6.48bn) of the $630m upfront cash portion of the deal by way of share repurchases, or as a special dividend.
"If Datatec were to pay out the full $500m tomorrow it would amount to a R30-a-share dividend," said Peter Takaendesa, a portfolio manager at Mergence Investment Managers. Datatec would retain $130m to fund operations and expansion. Up to $200m was payable as a cash earnout between now and March 2018, subject to Westcon Americas’ performance. This would also be returned to shareholders.
The deal gives Westcon-Comstor an equity value of $1.1bn, which is more than Datatec’s entire market capitalisation of $987m (R12.97bn).
"You are getting two companies for free if you buy Datatec shares," Takaendesa said.
Datatec also owns IT services provider Logicalis and technology consultancy, Analysys Mason. It had held on to most of the Westcon business in Europe, the Middle East, Africa and Asia Pacific because it believed it would receive a better price from Synnex once earnings in these businesses, which had been hurt by a recent SAP software implementation, recovered, Takaendesa said.
"Once Westcon International is able to show sustainable profitability, Synnex will make an offer for the 90% of the business they don’t currently own," said Roelof Brand, an analyst at Avior Capital Markets.
But Montanana said the sale of the remaining portion of the business to Synnex was not a shoo-in. "We’re operating in a dynamic environment in IT.
"There might be other combinations of deals that are more value-enhancing." The group would work very hard to show value in its other businesses.
Westcon Americas contributed $89m (75%) to Datatec’s operational earnings for the year to February, which will now no longer form part of group earnings, Brand said.
The Westcon transaction could unlock further interest in the stock, which often fell below the radar, Montanana said.
Coverage of technology companies such as Datatec had dwindled after the delisting of Dimension Data in 2010, Takaendesa said. Liquidity in the sector was too low for stockbrokers to assign dedicated analysts to it, he said.