South African tech tycoon Jens Montanana's Datatec stake tops 20% after special dividend

South African tech tycoon Jens Montanana has raised his stake in Datatec Ltd. above 20% after most of the company's investors chose new shares instead of cash in its R7.05 billion ($429 million) special dividend.

Shareholders took about two-thirds of the payout in stock, the Johannesburg-based information technology group said on Monday. Datatec issued 94.3 million new shares, worth R4.78 billion ($291 million), to investors who chose the share option. Holders of 78.6 million shares, about 32% of those that qualified, took cash totaling R2.28 billion ($139 million).

The new shares were priced at R50.63 each, the 30-day average share price to Oct. 5 minus the R29 ($1.77) dividend. The issue increases Datatec's share count by almost 39% to about 337.6 million.

Montanana's stake

Montanana founded Datatec in 1986 and remains its chief executive officer and largest individual shareholder. Under a facility agreement set out in the dividend circular, Datatec had to ensure, as far as the law allows, that he took new shares for about 90% of his holding. Chief Financial Officer Ivan Dittrich and Company Secretary Simon Morris were required to take shares for stock held in escrow under the company's deferred bonus scheme.

Montanana owned 44.9 million Datatec shares, or 19%, at the end of February. He has since received about 1.6 million shares from a staff incentive plan in June and 1.1 million shares through a smaller scrip dividend in July, and sold 180,000 shares in August. He also has a loan from a financial institution secured against part of his holding through collar hedges, which limit his gains and losses on the shares within set prices, and a share-lending arrangement.

Datatec will disclose the exact number of new shares issued to its directors on Wednesday. Based on the scrip ratio of 57.28 new shares for every 100 held, a 90% election would have given Montanana about 24.5 million new shares, lifting his holding to roughly 72 million shares, or about 21% of the company. At Monday's closing price of R56.05, that stake is worth about R4 billion ($245 million).

Upbeat earnings forecast

Datatec shares were up 5.2% at R58.96 in Johannesburg on Tuesday afternoon after the company said earnings jumped in the first half of its financial year. The stock closed at R85.90 on Oct. 9, days before it began trading without the right to the payout on Oct. 14.

Underlying earnings per share, the measure management prefers, are expected to rise 53% to 61% to between 29.5 cents and 31 cents in the six months to Aug. 31, from 19.3 cents a year earlier, Datatec said in a trading statement. The group, which reports in dollars, credited record earnings before interest, taxes, depreciation and amortization at its Westcon and Logicalis International units. Headline earnings per share, the main profit measure on the Johannesburg Stock Exchange, are expected to grow between 0.5% and 7.3%.

The company has a market value of about R18.9 billion ($1.15 billion) at Monday's close, based on the enlarged share count.

Where the money came from

The dividend was funded by a deal with US private equity firm General Atlantic that closed on Aug. 4. General Atlantic lent $375 million to Westcon International, Datatec's technology distribution arm, through a six-year senior secured facility carrying 9% cash interest, and paid $25 million for a 5% stake in its holding company. The deal valued Westcon's equity at $950 million before it repaid a $450 million shareholder loan owed to Datatec, leaving Datatec with about $434 million in cash to hand back to investors.

Datatec keeps control of Westcon. "The structure further embeds senior management in the business as shareholders," Montanana said when the deal was announced in June.

Datatec operates in more than 50 countries through Westcon-Comstor, which distributes networking, security and cloud technology, and Logicalis, which provides IT services to companies.