Altron/Liquid deal: The Venter’s vs Masiyiwa

JSE listed ICT giant Altron is throwing in the towel on its ill-fated East African network ventures in a development which gives life to the old idiom (inverted): One man’s meat is another man’s poison.

Altron announced last week a resolution to exit the 8.6% stake in Liquid Telecommunications Holdings. Altron earned the Liquid stake early last year after injecting its troubled east African network assets into Liquid, an operation controlled by Zimbabwean super entrepreneur Strive Masiyiwa.

Altron said its wholly owned subsidiary Altech has entered into an agreement with Econet Wireless Global, Masiyiwa’s vehicle, to dispose of its 8.6% equity interest in Liquid for a cash consideration of US$55 million (R587.9 million at an exchange rate of R19.69/US$).

This is after Altech acquired the Liquid stake for US$50 million (R454 million at an exchange rate of R9.07/US$).

Altron added that “This consideration will give rise to a profit on disposal of R134 million before tax, which will be treated as a capital item and will fall outside of headline earnings.”

A fuller view of this development positions Altron, a company controlled by South Africa’s powerful family business the Venters, as losers. Masiyiwa’s vehicle Econet appears to be a winner.

Altron’s venture into the East African network assets dates back to 2007 when its subsidiary Altech established Altech Stream Rwanda. Soon after that the company went on an aggressive East African expansion and mainly via acquisitions.

In a few years, Altech established a comprehensive East African network covering countries like Rwanda, Kenya and the Democratic republic of Congo (DRC). These companies operated as network service providers and ISPs in East and Central Africa.”

Altech had also ventured into West Africa. Trouble around Altech’s East and West African ventures emerged around 2010 when there was a need to recapitalise the operation jointly with a cocktail of equity partners. Altech had also suggested that its plans were partly derailed by a regional collapse of international bandwidth selling prices, local management challenges, the loss of key customers and interest and exchange rate volatility.  By 2012 these East and West African operation were punching holes into Altech’s income statement

Losses have been mounting topping R200m in the 2012/13 financial year via huge write offs. The extent of the crisis was reflected via an extraordinary move by Altech CEO Craig Venter, acknowledging and taking some responsibility for an operation gone wrong.  Craig Venter, the son of Altron founder Bill Venter bypassed salary increase and bonus during the 2012/13 financial year due to losses suffered in these East and West African operations.

In injecting the East African network assets into Liquid early last year Altech said it “believes that its AEA network would benefit considerably from becoming part of a larger, specialist network and ISP operator with more extensive experience in building, maintaining and operating networks in Africa.”

The combination of Liquid’s southern and central African network facilities with those of AEA in East Africa will create a formidable pan-African entity which will be able to offer unparalleled communications, access and support services to major international corporate clients, in particular.”

The combination of Liquid’s and AEA’s network will create the African continent’s largest single terrestrial fibre network connecting more African countries than any other single terrestrial network.”

The efficiencies which this will create will be considerable and will enable the interconnectivity of the continent in a manner previously unachievable. Enterprises will, in many cases for the first time, be able to obtain point to point connectivity between a virtually unprecedented number of African countries.”

Altech had also stated that certain of Altech’s other activities, for example in the Multimedia sector, offer strategic and complementary products to Liquid’s triple play technologies and services which will benefit the enlarged Liquid group as it extends its reach into the wider, mass communications market, involving converged internet, VOIP, IPTV and video-on-demand services in high-growth African markets.”

With this rationale it did not look like Altron was bailing out but it appeared to be repackaging its operations jointly with Econet.

The 8.6% Liquid stake came with considerable participation rights for Altech and an apparent future view. These included   tagging the stake as a strategic minority interest. The stake attracted to Altech a voting right equivalent to 10% in Liquid. One of the conditions of the deal was that “for so long as Altech holds not less than 5% of the total issued share capital of Liquid, Altech will be allowed to appoint one director on the board of Liquid.

It was further stated early in 2013 that “Altech shall not be entitled to receive any dividends during the period commencing on the effective date and ending eighteen months thereafter”

“Liquid’s controlling shareholders have indicated that Altech may be afforded the opportunity to increase its shareholding in Liquid, in the future, in order to enhance the strategic partnership between Liquid and Altech.”

As such news that Altron has now resolved to exit Liquid is surprising. In rationalising this move Altron said “Following the delisting of Altech and the creation of the Altron Telecommunications, Multi- media and Information Technology division (Altron tmt), both the Altron and Altech boards no

longer consider Altech’s 8.6% equity interest in Liquid to be core to the ongoing operations of the Altron group”.

The cash consideration from the Disposal will be used to reduce the Altron group’s net debt position following the scheme of arrangement between Altron and Altech, completed on 19th August 2013.”

The group added that “Notwithstanding the Disposal, the Altron group will continue to explore areas of common commercial interest and co-operation with the Econet/Liquid group in Africa.”



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