Tuesday 20th December 2016
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(Updates recasts on share price, adds broker comment)Rakon shares hit their highest level in seven months after the high-tech components maker said it will raise US$10 million from Taiwan's Siward Crystal Technology, selling shares at a steep premium to repay debt while gaining a new partner with an established crystal manufacturer.
The shares rose as far as 28 cents, the highest since May, and were recently up 28 percent at 22 cents after Auckland-based Rakon said it will sell 38 million shares, or 17 percent of the company, at 37 cents apiece to Taiwan Stock Exchange-listed Siward in a placement that is expected to settle on Feb. 15. As part of the deal, Siward will appoint a director to Rakon's board, which faced a shareholder revolt at this year's annual meeting that led to executive director Darren Robinson being dumped from the board.
The sale price is more than twice the 17.2 cents Rakon shares closed at yesterday, having slumped 44 percent this year as it sank back into losses.
Siward "are obviously going to get the benefit of Rakon's licensing and technology, and so that's probably a good reason why they'd pay a premium, but investors are still pretty cautious on the company, given its track record in the last number of years where it's disappointed shareholders hoping for a turnaround," said Grant Williamson, a director at Hamilton Hindin Greene in Christchurch. "Hopefully it's the turnaround the company needs."
As part of the deal, Rakon and Siward also signed a technology deed to work more closely on development and manufacturing.
"Siward's manufacturing scale and expertise is a perfect complement to Rakon's leading-edge technology," managing director Brent Robinson said. "This partnership will give both companies a broader range of products and alternative channels into new and exciting markets."
The Taiwanese company makes crystals and oscillators used in telecommunications and GPS devices, with operations in Taiwan, China, Japan, Singapore, the US and Europe.
Rakon tilted its focus to the telecommunications sector after rivals in the smart wireless market caught up, turning what was once a niche product into a commoditised one. The shift helped Rakon return to profitability in the March 2015 year, but a slump in spending by network operators weighed on the Kiwi firm in 2016 and pushed it back into the red, with the company reporting a first-half loss of $5.7 million.
The company said it will use the $14.1 million raised to repay debt, which was at $22.8 million as at Sept. 30, up $100,000 from a year earlier. Rakon was in a negative cash position of $688,000 as at Sept. 30 as its operational cash flow turned negative in the half.
Rakon also said it's still seeking another New Zealand-based director and expects to make an announcement early next year.
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