The much-awaited scheme meeting pursuant to NetComm’s acquisition by U.S. company Casa Systems flagged a green card on Tuesday. Despite the concerns raised by some NetComm shareholders, the company received 86.6% vote in favour of the Scheme of Arrangement under which Casa Systems (Nasdaq: CASA) will acquire 100% equity interest in NetComm at a cash consideration of $1.10 per share.
Background of the Meeting:
Telecommunication network equipment company NetComm Wireless Limited (ASX: NTC) held its shareholder meeting in Sydney on Tuesday, which was originally scheduled to be held on 7 June 2019. The meeting was postponed due to the voices raised by some NetComm shareholders against the directors’ decision to recommend that ‘NetComm shareholders vote in favour of the Scheme in the absence of a superior offer’.
This translates the Directors’ statement dated 27 May 2019 wherein they confirmed their unanimous recommendation in favour of the Scheme following the receipt of FIRB approval and the appropriate orders from the Federal Court of Australia. The statement also reaffirmed that Independent Expert Lonergan Edwards continues to conclude that the Scheme is in the NetComm shareholders’ best interest. The Directors’ recommendation was, however, questioned by some NetComm shareholders, thereby demanding the clarification for the same.
Despite the fact that they have satisfied their obligations in relation to the Scheme Booklet, the Directors decided that shareholders should be given every reasonable assistance to inform themselves ahead of exercising their right to vote at the Scheme Meeting. The Directors therefore concluded to adjourn the Scheme Meeting until 10.00 am on 18 June 2019.
Results of the Meeting
The resolution to approve the Scheme was passed by the requisite majorities of 75% of the votes from NetComm shareholders. However, the Scheme reportedly remains subject to Court approval scheduled to be heard on Thursday, 20 June 2019.
The final results of the poll were as follows:
Results of the Scheme Meeting (Source: Company Announcement dated 18 June 2019)
Details of Acquisition proposal
On 22 February 2019, NetComm announced the acquisition proposal it received from Casa System to acquire all the shares in NetComm at a total cash consideration of A$161 million. The parties to the transaction subsequently entered into a definitive agreement, under which Casa Systems agreed to pay the consideration at A$1.10 per NetComm share in cash.
In the address to shareholders, Chairman Justin Milne stated that Scheme Consideration of $1.10 per NetComm Share represents a decent premium to the valuation range of $0.85 to $1.08 per NetComm Share as assessed by the Independent Expert.
Listed on Nasdaq, Casa System is a United States-based communication service provider, pioneering 5G solutions for cable, mobile, fixed and converged service providers with advanced ultra-broadband. The reports read that Casa Systems has revenue of ~US$300 million with the workforce of over 700 employees across 11 nations.
Rationale of the transaction
Casa and NetComm share complementary product portfolios, which if brought together have the potential to strengthen the development of unique 4G and 5G solutions to serve the growing demand for increased bandwidth around the world.
Justin Milne stated that if the acquisition transaction goes through NetComm’s customers will derive advantage from the resultant rise in scale to deploy unique technology solutions along with having the exposure to broader product suite and service capability.
NetComm believes that cent percent cash consideration provides certainty to NetComm shareholders’ value and the opportunity to receive their investment in full cash. Moreover, the proposal was recognised as a compelling offer by NetComm’s Directors for the offer being 52.8% above than the closing price of A$0.720 per share on 20 February 2019.
Netcomm’s Financial Performance
NetComm reaffirmed its FY19 guidance to a forecast of growth in revenue of 15-20% as initially stated in FY18 results. Its half year report for the six months ended 31 December 2018 also stated noted that underlying EBITDA for Fiscal 2019 to be in the range $15 million to $18 million. The directors commented that the forecast growth was dampened due to slower than expected rollout of certain specified projects, although revenue on those projects was not lost but, rather, deferred to future periods.
Commenting on this outlook, the management stated that NetComm is encouraged by the ramp up in orders received from international customers for Fixed Wireless devices and expect that NCD sales to nbn will remain strong in the second half of FY19. The company also acknowledged the strong pipeline of multiple global 4G/5G Fixed Wireless and DPU opportunities which when combined with its existing contracts could result into the strong revenue and earnings in future periods.
Despite the positive outlook, NetComm’s Directors and its majority shareholders have decided to accept Casa’s acquisition proposal. In ordered to support the decision, the Directors concluded that acquisition scheme crystallises the company’s value of all-cash consideration at a substantial premium, which represents an attractive alternative to waiting for the NetComm share price to reflect value that may be created by the execution of NetComm’s long term strategy, which is dependent on new customer wins together with the inherent uncertainty of future revenue streams.
In the Scheme Meeting results, NetComm stated that if the transaction gets approved by the Court, NetComm shareholders will be entitled to receive $1.10 cash for each NetComm share held on the Scheme Record Date, i.e. 25 June 2019. The implementation date has been set to 1 July 2019.
NetComm further expects its earnings to be evenly balanced across the first and second half of FY19, based on expectations around customer order patterns. Moreover, the company earlier announced its plan to invest heavily in technology advancement that would have channelised the next step change in its earnings and revenue by FY20.
There has been no daily price change in NTC stock as at 19 June 2019 (4:06 PM AEST). However, there has been a daily volume change of 415,008 shares.
NTC last traded at $1.095 with price to earnings multiple of 24.230 x and a market capitalisation of $160.23 million. Over the past 12 months, the stock has declined by 13.60% despite a positive price change of 42.11% over the past six months.
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