Amcom Telecommunications Ltd has signalled its desire to be a major player in a likely consolidation of the junior telco sector, securing a further $30 million from major shareholder Futuris Corporation Ltd.
Amcom Telecommunications Ltd has signalled its desire to be a major player in a likely consolidation of the junior telco sector, securing a further $30 million from major shareholder Futuris Corporation Ltd.
The move will require shareholder approval, at the same time as investors ratfy an earlier deal through which Futuris provided $20 million to help Amcom take a 19.9 per cent stake in iiNet Ltd.
If shareholders approve, the funding will allow Futuris the possibility to convert to equity, pushing it potentially from its current 19.3 per cent stake in Amcom to as much as 60 per cent.
However, other shareholders will also be offered a one-for-one option which would significantly reduce the dilution of the Futuris deal. If all shareholders took up their entitlement Futuris would end up with about 42 per cent of Amcom.
Amcom chairman Tony Grist said the facility would position the company for acquisitions if they came up, including a bigger stake in iiNet if, for instance, it required further capital in the future.
"If we had the opportunity to increase that shareholding we would be in a position to do that," Mr Grist said.
He said the first $20 million funding deal had happened ahead of shareholder approval because the opportunity to invest in iiNet came up sooner than expected and was actually a catalyst to focusing Amcon's future on acquisitive growth.
Mr Grist, an iiNet board member, said iiNet had resolved any perceptions of liquidity issues through its sale of the New Zealand-based ihug business recently for more than $30 million.
Amcom shares closed up 1 cent at 17 cents giving the company a market capitalisation of around $64 million.
The full text of a company announcement is pasted below
Amcom Telecommunications Ltd has reached agreement with cornerstone shareholder, Futuris Corporation Ltd, in respect of an additional $30 million facility.
The Additional Facility has similar terms as agreed under the previous facility that successfully funded the company's 19.3% interest in iiNet Ltd. The Additional Facility is subject to shareholder approval at the forthcoming Annual General Meeting and the key terms are set out in Appendix A. Key terms include that the Facility may be drawn down all or in part by mutual agreement, and if drawn, Futuris may convert the amount drawn into new Amcom shares at a price of 17 cents per share.
The provision of the Additional Facility demonstrates Futuris' strong continued support and confidence in Amcom and its management team to deliver on their growth strategy.
Amcom will seek shareholder approvals to convert the $20.4 million drawn under the Current Facility and issue an attaching 1:1 bonus option to all shareholders excluding Futuris at its upcoming Annual General Meeting.
The bonus options will be exercisable at 17 cents (the same conversion price agreed with Futuris under both their facilities) on or before 31 December 2009. Amcom will seek to have these options listed on the ASX.
Upon exercise, the bonus options will provide Amcom with a further $47 million to fund its growth. If approved by shareholders, these financing transactions will result in Futuris increasing its 29.9% shareholding in Amcom to:
- Upon conversion of the Current Facility: 46.9% (or 28.9% on a fully diluted basis)
- Upon full conversion of both the Current Facility and the Additional Facility: 60.85% (or 42.59% on a fully diluted basis)
In accordance with its regulatory obligations, Amcom has commissioned an independent expert who has concluded that these transactions are both fair and reasonable to Amcom shareholders not associated with Futuris.
Amcom chief executive Eddy Lee said the company's much anticipated consolidation of the second and third tier telco sectors had yet to take place.
"We believe that this is primarily due to incompatible pricing expectations by both sellers and buyers," he said.
However, in the sector where the business model is one of a Reseller whose profit margins continue to decline through upward cost pressures from network suppliers, this will most likely present the best opportunity for consolidation.
Amcom chairman Tony Grist said the Futuris facility, coupled with the bonus issue, would represent an attractive funding mix for future acquisitions, being essentially equity driven.
"We intend to continue our current strategy of targeting additional growth through strategic acquisitions and leveraging Amcom's existing infrastructure advantage with innovative products to meet increasing customer demand.
"Hence, this Additional Facility will provide Amcom with significant flexibility to execute its acquisition strategy," Mr Grist added.
Potential acquisitions and growth strategies may include:
- the expansion of the Company s existing businesses, both from a broadband infrastructure and geographical perspective, which may include opportunities to invest in regional telecommunications infrastructure and providing telecommunications services to regional Australia;
- participating in any potential consolidation within the telecommunications sector;
- supporting and, if appropriate, expanding its existing strategic investment in iiNet, whether through participating in and supporting any capital raising of iiNet, further share acquisition opportunities or undertaking joint business initiatives with iiNet;
- and other strategic acquisition opportunities including businesses which are within Amcom's business sector or which are complementary to it.