Competition Commission Approves Novus Holdings’ Acquisition of Mustek with Conditions

The Competition Commission has given its proposal to the Competition Tribunal for the approval of Novus Holdings’ proposed acquisition of Mustek, a meaningful player in South Africa’s technology distribution sector. This decision, announced recently, includes specific conditions designed to protect employment and ensure fair treatment for Mustek’s workforce. The proposed acquisition follows Novus’s purchase of over 35% of Mustek’s shares in November of the previous year, triggering a mandatory buyout offer. The deal, perhaps valued at R335 million, represents a notable shift in the ownership of one of South Africa’s oldest computer companies.

The Competition Commission stated that the transaction was unlikely to “substantially lessen or prevent competition in any market.” This initial assessment paved the way for further consideration of the merger,focusing on broader public interest concerns,especially those related to employment.

Addressing Employment Concerns

While the Competition Commission did not anticipate significant anti-competitive effects,it recognized the importance of addressing potential employment-related public interest concerns. To mitigate these concerns, Novus and Mustek have agreed to a two-year moratorium on retrenchments. This commitment aims to provide job security for existing Mustek employees during the integration period.

Furthermore, the agreement includes preferential employment conditions for employees Mustek retrenched before the transaction. This provision seeks to offer a degree of redress for those who may have been affected by earlier restructuring efforts within Mustek.

The Players Involved

Novus Holdings, controlled by A2 Investments Partners, operates a diverse portfolio of businesses. The group’s primary focus is on commercial printing, manufacturing, and packaging. However, its interests extend beyond these core activities.

According to the Commission, Novus also provides a range of training services and holds investment interests in various industries, including sports betting, construction, agriculture, and technology. This diversified portfolio highlights Novus’s strategic approach to investment and growth.

The Offer on the Table

Novus outlined the terms of its offer last year, providing Mustek shareholders with several options for their shares. Shareholders who elect to sell can choose between receiving cash, shares, or a combination of both.

Novus has offered a price of R13 per Mustek share. By the time of publication, Mustek was trading at close to R14, indicating market confidence in the deal.

Alternatively, shareholders can elect to sell for R7 plus one Novus share, or trade one Mustek share for two Novus shares. This flexibility aims to accommodate the diverse investment preferences of Mustek’s shareholders.

At the time of publication, Novus was trading at R7. to ensure the financial viability of the offer, the company delivered an irrevocable unconditional guarantee issued by investec for the maximum amount payable under its mandatory offer, which is R335 million. This guarantee underscores Novus’s commitment to completing the transaction.

Regulatory Hurdles Remain

While the Competition Commission’s proposal is a significant step forward, Novus still needs to obtain several approvals before the deal can proceed. These include regulatory approvals from the Competition tribunal, and potentially the South African Reserve Bank and JSE.

The Competition Commission’s nod takes them one step closer to getting approval from the Tribunal.

The long stop date for obtaining the necessary consent is 31 July 2025. This deadline provides a timeline for completing the regulatory review process.

If the deal’s suspensive conditions are not fulfilled by then, Novus saeid it would sell some of its Mustek stake so that its shareholding becomes less than 35%. It said it would follow the Takeover Regulation Panel’s directions in this regard. This contingency plan ensures compliance with regulatory requirements.

shareholder Resistance

Despite the attractive offer, not all Mustek shareholders are on board with the acquisition. Novus reported that it had received irrevocable undertakings from three Mustek shareholders comprising approximately 20.29% of all issued shares that they would reject the buyout offer.

These shareholders are the DK Trust, Mustek managing director Neels Coetzee, and Mustek group chief executive officer Hein Engelbrecht. Their decision to reject the offer highlights potential disagreements regarding the future direction of Mustek.

Takeover Regulation Panel’s Scrutiny

The Takeover Regulation Panel has also played a role in overseeing the proposed acquisition. The Panel issued a ruling,scrutinizing the merger parties for their initial lack of transparency regarding their deliberations leading up to the deal.

It also revealed that Hein Engelbrecht, along with Michael Kan, where trustees of the DK Trust.

“The DK Trust is deemed to be a concert party of Novus in relation to the mandatory offer,” the regulator ruled. This determination could have implications for the overall fairness and transparency of the acquisition process.

mustek’s Undervaluation and Potential

Novus’ acquisition of a sizeable stake in Mustek and subsequent mandatory offer comes after Umthombo Wealth chief investment officer Alex Duys said the company could become a target for corporate action.

Duys and Protea capital Management CEO Jean Pierre Verster previously said that Mustek was a good investment possibility as it is indeed indeed a good company that is undervalued.

Mustek’s low valuation also makes it an acquisition target. Many companies may see it as an prospect to buy the distributor at a bargain price.

While Mustek’s results have suffered in recent years, analysts expect this to improve in 2025.

they explained that the 2020 lockdown was good for mustek as the work-from-home revolution forced companies and workers to upgrade their home technology.

Mustek’s results should improve as the upgrade cycle kicks in following this buying frenzy.

Duys explained that Mustek previously took pain because it overstocked on renewables. Eskom’s load-shedding reprieve dropped demand for these products.

Though, there was still demand for these products, and they were still selling them — albeit at lower margins.

Mustek’s management said they are actively addressing the working capital issue, which will release a lot of cash.

The higher cash flow will reduce the company’s debt and interest payments. In turn, earnings will increase. This is expected in a year or two.

Conclusion

The Competition Commission’s conditional approval marks a significant milestone in Novus Holdings’ pursuit of Mustek. While regulatory hurdles and shareholder resistance remain, the deal represents a potentially transformative moment for both companies. The coming months will be crucial as the Competition Tribunal reviews the proposed acquisition and stakeholders assess the long-term implications of this merger.