Aplitec's 'smart move' to the Nasdaq will see minorities losing out

Time of article published Nov 14, 2003

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Net1 Applied Technology Holdings (Aplitec) announc-ed on the last day of October that it would fold its operations into Nasdaq-listed Net1 UEPS Technologies (NUEP) and delist from the JSE Securities Exchange.

Minority shareholders have the choice of accepting either cash or cash and shares in NUEP. Unfortunately, both options are problematic and the rationale for the transaction itself is not clear.

The cash and shares offer is not going to be possible under some institutional mandates, because these mandates may not allow investment in over-the-counter-traded Nasdaq securities and/or because some institutions may not have the infrastructure to administer foreign-listed equities. On top of this, because of our exchange control regime, the South African shareholders' investment will be held in a trust with various restrictions placed on the administration and control of their investment. Do the long-suffering and patient shareholders in Aplitec really need this?

Dr Serge Belamant, the chief executive of Aplitec, and the late André Mansvelt developed two patented technologies, the Universal Electronic Payment System (UEPS) and the Funds Transfer System.

Aplitec's products include smart cards, social welfare and wage payment systems, financial systems and banking and retail applications, all based on its core UEPS technology.

The problem, according to Aplitec management, is that Aplitec owns the exclusive rights to market, sell, lease, distribute, develop or modify its smart-card technology in southern Africa. NUEP, on the other hand, owns the exclusive rights to market, sell, license, distribute, develop or modify its smart-card technology in the rest of the world.

The rub is that Aplitec has been by far the more successful at implementing this technology and has launched many UEPS systems in South Africa and other African countries. NUEP, by contrast, has not implemented a single system. NUEP has been unable to raise sufficient capital to implement its business model, because most potential investors require at least one successful UEPS implementation.

The solution, according to management, is to fold Aplitec into NUEP, because this will prevent any further conflict of interest and allow a single point of access from which value can be unlocked.

The combined group will also be able to attract more funds and investors, and will be more credible with an international listing. The combined NUEP group's credit rating will enable it to raise capital on favourable terms.

According to management, the merger with NUEP is the most acceptable solution for all stakeholders, and allows all existing South African shareholders to participate in the value that will be unlocked as a result of the anticipated international growth.

I disagree strongly. It is patently clear that not all shareholders will be able to participate, and the other arguments for Aplitec folding into NUEP are not compelling either.

The implication is that the JSE is not an international exchange and is unsuitable for raising capital. The JSE compares very favourably with the Nasdaq OTC Bulletin Board - an electronic quotation system for unlisted, non-Nasdaq, over-the-counter securities.

And why should Aplitec, by far the more successful of the two companies, be folded into NUEP?

Instead of trotting out the standard reasons for a Nasdaq listing and the usual mumbo jumbo about "looking after all stakeholders", perhaps the directors should be candid enough to admit that what they actually want to do is realise the value of their investment on an offshore exchange.

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