NetComm Wireless shareholders fight takeover bid

JUNE 05, 2019

"Not only is this Australian company profitable, it has talented staff and for $1.10 per share Casa would be getting the people, its equipment and its cash balance of about $17 million."

NetComm Wireless was founded in 1982 by director David Stewart and provides a suite of telecommunications network technologies ranging from commercial 5G, 4G and fixed wireless solutions, designed to bridge the gap between the NBN's fiber-to-the-node and fibre-to-the-curb rollouts and the home, as well as Wi-Fi modems for homes and industrial Internet of Things devices.

Mr Stewart retired as managing director in 2016, but remains on the board and is the company's largest shareholder with 12.3 per cent.

Up until late August last year, NetComm Wireless had been trading around $1.20, reaching as high as $1.35 in the last 12 months. But at its full-year results announcement in August, the company told the market 2019 would be a "year of consolidation" to ensure it had a sustainable business going forward.

While the business had recorded 69 per cent revenue growth to $181.7 million in 2017-18, it was only predicting just 15-20 per cent revenue growth for the following year thanks to slower than expected NBN FTTC rollout, as well as a slower rollout of US telco AT&T's fixed wireless project. At the same time, this slower growth was slated to be completely offset by investments in its 5G technologies, resulting in lower earnings before interest, tax, depreciation and amortisation.

While shareholders like Mr Tulloh saw this as a necessary blip in order to shore up the company's future potential, taking confidence in then chief executive Ken Sheriden's comments that this would position NetComm Wireless at the forefront of a "once in a decade technology wave", it triggered a major sell-off, with its share price dropping 43 per cent in a day from $1.35 to 77¢.

Now, Mr Tulloh has united with around 24 other disgruntled shareholders - split between those who have been long term holders and others that bought in more recently when NetComm Wireless was trading above $2-3 in 2015 and 2016 - to pressure others to also vote down the Casa deal.

"The story changed so quickly between the end of last year to now and to be offered $1.10 is pathetic."

While they do not hold out much hope at convincing the major institutional investors like UBS to vote with them, even if they could turn even one small institutional shareholder the group would consider that a win.

The shareholder offensive began when the group of unhappy shareholders decided to personally fund a letter to be sent to 1900 NetComm investors in late May, explaining their concerns and laying out a case for why the company should be valued higher. It was written by Namsat director and NetComm shareholder Tas Davies.

Like Mr Tulloh, fellow long-term holder Gary Jackson bought in when the company was priced around 11¢. He said he could not understand why the company was willing to recommend the $1.10 per share offer, when the it had made it out that the investments in 5G technology would provide a "step function increase" in the coming years.

"In the Longergan Edwards & Associates (the independent expert hired to assess the Casa offer) valuation, they did not give any value to its 5G work that NetComm have supposedly put so much effort and profit into," he said.

"I really can't understand why it dropped like a rock in August... I [also] don't know why they want to get out. The story changed so quickly between the end of last year to now and to be offered $1.10 is pathetic."

In the scheme booklet it was revealed that Longergan Edwards & Associates had valued the company between 85¢ and $1.08 per share. Prior to the announcement of the deal in February, Baillieu analyst Luke Macnab and Canaccord Genuity's Conor O'Prey had given the company a target price of 94¢ and 90¢ respectively, but Blue Ocean Equities' Philip Pepe had a target price of $2.00, according to Bloomberg.

The board recommended shareholders vote for the deal on the basis that it would immediately realise their value, it was a significant premium to its recent price, was supported by the independent valuation and there had been no superior bids.

NetComm Wireless refused to comment beyond the scheme booklet.

The shareholder meeting is being held at 10am on Friday in Sydney.