Ayo Technology Solutions’ recently released circular has good and bad news for shareholders. The good news is that the independent experts reckon the share is worth between R4.94 and R5.20 — a generous surplus on the R1.30 at which it’s trading.
The bad news is that the group’s cash resources have plunged to a mere R480m from R1.1bn. That was a result of having to fork out R619.4m to the Public Investment Corp (PIC) for the 17-million shares it was forced, by a court-endorsed agreement, to repurchase from it earlier this year.
It’s a very far cry from the R4.3bn cash Ayo started its listed life with, thanks entirely to the PIC, which paid R43 a share for a stake of almost 30%.
And, sadly, there’s a bit more bad news. The comparatively generous valuation is based entirely on information provided to the independent experts by Ayo. That is always the problem with “fair and reasonable” opinions. But Merchantec, which provided the opinion and happens to be Ayo’s lead sponsor, makes no secret of this. “In the course of our analysis, we relied upon financial and other information obtained from Ayo, together with other information available in the public domain,” it states in its opinion.
Perhaps more significantly, given how rarely it happens, Merchantec has declared the transaction to be unfair to Ayo shareholders. That’s hardly a surprising conclusion given that it involves paying R36 a share to the PIC for shares Merchantec estimates are worth between R4.94 and R5.20.
The Ayo board takes a more expansive view. After considering the terms and conditions of the “specific repurchase” of shares from the PIC and Merchantec’s opinion, the directors say they “are of the opinion that … [it] … is unfair but reasonable to Ayo shareholders”. They recommend that shareholders vote in favour of the resolutions at the meeting, scheduled for August 28.
The R619m does look like a good deal for Ayo shareholders in the context of the R4.3bn the PIC was targeting when it issued a summons against Ayo back in May 2019. Ongoing litigation and the presence of hostile shareholders, with a holding just short of 30%, made life difficult for Ayo.
Within two weeks of the start of court proceedings in March 2023, the parties reached an amicable solution; Ayo would pay back some of the money through an extravagantly priced repurchase of its shares from the PIC. Of course, the deal involves only a fraction of the shares the PIC had bought at the time of the listing in December 2017. On completion of this transaction, the PIC will still hold just more than 25% of Ayo.
Crucially, that is a large enough stake for the PIC to continue to block special resolutions. The PIC’s voting records show that since 2019, after the departure of CEO Dan Matjila, it has voted against almost half of Ayo’s AGM resolutions including the provision of financial assistance to related companies.
All things considered, the agreement was probably the best for both parties
All things considered, the agreement was probably the best for both parties. Which might explain why Ayo rushed to hand over the money just four days after it was made an order of court on March 24.
Ayo had completed the solvency and liquidity test required by the Companies Act but hadn’t realised that because the PIC was considered a related party, Ayo shareholders had first to approve the transaction. Presumably this means that if the transaction is not approved by 75% of shareholders at the August meeting, the PIC will have to return that money. But that’s unclear.
The JSE’s Andre Visser confirmed to the FM that a company can only repurchase shares if approval is provided by shareholders. “Under normal circumstances the shares will be repurchased by the company and payment made for such shares once the approval is obtained and all other conditions are met,” says Visser. But these were far from normal circumstances given that the settlement agreement was confidential. Ayo did not advise the JSE or shareholders at the time of the proposed repurchase, either.
It was only after the JSE “engaged” with Ayo that details were disclosed and plans for the necessary shareholder meeting announced.
The PIC has confirmed to the FM that “it has received the R619m in terms of the court settlement”. Money that would presumably have to be repaid if shareholders don’t provide the ex-post approval.
It would not say whether it would be more supportive of special resolutions at future AGMs. “Ayo remains a listed company; it would not be advisable, in this instance, for the PIC to pre-empt and publicly disclose how it would vote on special resolutions at a listed investee company’s AGM before formally notifying the investee company,” a PIC spokesperson told the FM.
Ayo says it now has the support of 56% of the shares belonging to those entitled to vote at the meeting, which should do the trick. But if it doesn’t get the required 75%? Then “Ayo will engage further with the PIC on the way forward”.
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