ERG Group has announced the details of a fully underwritten five-for-four renounceable rights issue at a price of 20 cents a share to raise $67 million.
The news had taken market experts by surprise, given ERG’s share price at the beginning of July was 60 cents.
However, even with such a large share price discount on offer, the company’s share price has remained around the 55-cent mark. Whether that remains the case over the next fortnight or so remains to be seen.
Besides the rights issue, which is fully underwritten by Patersons Securities Limited, ERG’s major shareholder, Ingot Group, is sub-underwriting $30 million and ERG directors Tony Shepherd and Allan Sullivan are sub-underwriting $330,000 each.
ERG says the money is needed to help clean up its balance sheet.
The company has also announced the favourable settlement of the remaining $54 million in liabilities relating to its purchase of the now divested Proton World International. It has also embarked on a corporate restructure, making three key appointments.
The Proton settlement will result in a one-off profit on the restructure of the liabilities of $22.2 million.
Proceeds from the rights issue will provide $35.7 million in working capital to assist delivery of capital intensive early stages of works in progress and meet costs of the issue, as well as allowing ERG to selectively bid on the growing number of large-scale transit ticketing projects.
The remaining funds will be used to make a $15.8 million up-front payment for the Proton World International settlement and repay $15.5 million in debt facilities to the Ingot Group.
The new appointments are Mark Griffiths to the position of head of the large projects division, David Goudie to the head of technology and research and development and David Stone to head UK business and head of business development and strategy.
Mr Griffiths was previously engineering director for Honeywell Solutions.
Dr Goudie was previously general manager of Siemens Security Technology Centre.
Mr Stone is a senior level growth manager who has played a leadership role in launching business, products and technologies for Fortune 500 companies.
ERG chairman Tony Shepherd said ERG was a stronger company than when it began its balance sheet restructure in 2002.
"The favourable settlement of the remaining liabilities associated with the acquisition of the now divest Proton World and the completion of the corporate restructure come at a time when the company is on the cusp of returning to profitable growth that capitalises on its position at the forefront of the global automated fare industry," he said.
ERG has reached agreement with Banksys SA, Visa International Service Association and Interpay Nederland BV to settle and renegotiate on favourable terms the remaining $54 million owing in terms of ERG’s purchase of Proton World in 2002.
Under the terms of the transaction, ERG will extinguish $39.8 million of liabilities due to the former Proton World shareholders in exchange for an up-front cash payment of $15.8 million and issuing a potential total 12.5 million shares to those parties under the following formula:
p Initially $1.5 million in shares will be issued at 20 cents;
p A further $2.5 million of shares will be issued at a 5 per cent discount to the then prevailing market price if the share price trades at $1 for more than 30 days between 2005 and 2011; and
p A further $5 million of shares will be issued at a 5 per cent discount to the prevailing market price if the share price trades at $2 for more than 30 days between 2005 and 2011.
