The trading halt was applied when at least one shareholder learned about the bid. While the suitor was not identified, Lindsay said the language used in the filing made it clear it was not from a private equity player but a peer. Rakon said the offer was from a “credible industry player”.
Whether the offer is credible is another matter. In Lindsay’s view, “The timing of the bid appears opportunistic, with Rakon amid a cyclical industry downturn that has weighed heavily on its share price.”
ForBarr does not have a buy/sell rating on Rakon or issued any 12-month target price predictions. But Lindsay said there are indications that “the industry appears near the cycle’s low point”.
The analyst said Rakon had a strong position in several fast-growing markets, including AI, data centres and “NewSpace” - an industry buzzword for the booming low-Earth orbit satellite industry.
“There are a couple of dynamics that are going particularly well for them. Space has been quite a growth market globally.”
He said Rakon also had a high share in the emergency locator beacon market, which had been hit by the economic slowdown. He saw a “significant rebound” in the works.
“We expect earnings to rebound past their 2022 peak over time,” he said.
NZ Shareholders Association chief executive Oliver Mander compared the offer to the unsolicited, non-binding offer for Eroad.
“I wouldn’t use the word ‘opportunistic’, but it’s clear that global markets, including New Zealand, are at the bottom of a valuation cycle, and that makes the offer look quite strong in terms of the raw share price,” Mander said.
“Investors with deep pockets and long time horizons are in a great position to take advantage of the current cycle.”
It was difficult to comment given the paucity of detail, but Mander said the NZSA was wary that the unsolicited offer had been described as “highly conditional” - and would be particularly concerned if any of the conditions involved trading restrictions on Rakon during the scheme of proposal, or negotiating period.
Guidance lowered
Rakon, which turns quartz crystals into radio frequency control systems that help telecommunications gear, satellites, missile guidance systems and emergency beacons maintain the same “heartbeat” as other electronics, reported record earnings last year (see the table above).
But its profit all but evaporated in the six months to September 30 (the first half of Rakon’s 2024 financial year) and revenue was down by a third and Rakon lowered its full-year guidance.
There were two key factors behind the disappointing result. One was a slump in telecommunications networking infrastructure - Rakon’s largest single market - that had persisted longer than anticipated. The other was “destocking” - or customers who had stockpiled chips in reaction to pandemic supply chain interruptions, but were now letting their supplies run down to a normal level.
Rakon said the buyout offer “is incomplete and highly conditional”. Like others, Lindsay is waiting to hear more details.
Rakon’s shareholders
Various members of the Rakon’s founding family, the Robinsons, own 30.4 per cent of its stock.
The next largest shareholder is Taiwan-based Siward Crystal Technology with a 12.2 state. Swiward, which also makes frequency-control crystals, first invested in Rakon in 2016. The two firms have partnered on various projects.
The third largest investor, with a 5.3 per cent stake, is activist shareholder Mike Daniel, who earlier this year saw his longtime campaign for Rakon to pay a dividend finally payoff.
Daniel told the Herald he was not aware of the identity of the bidder. He said $1.70 sounded like “a pretty good offer” but that he would need to know the identity of the buyer, and the conditions, before making a decision.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
