It's time for a bold move, says Cadmus

Eftpos company Cadmus Technology plans to merge with Australian-listed Intellect Holdings in a bid to accelerate global expansion.

And in a move which bucks the recent trend of companies delisting from the New Zealand Exchange, the merged entity will remain listed on the NZX, but not in Australia.

Cadmus chairman Keith Phillips said the merged entity would benefit from increased scale and efficiency, complementary product ranges and an increased global customer base.

Intellect is European-focused with a growing South America interest, while Cadmus has a strong presence in New Zealand, Singapore and South-East Asia.

"This is not about cost saving," Phillips said. "This is about aggressively scaling for further expansion."

The proposed merger will result in a subsidiary of Cadmus acquiring all of the shares, options and convertible notes in Intellect.

Cadmus would retain its name, its NZX listing and a head office in Auckland.

Each Intellect shareholder would be entitled to 3.33 Cadmus shares or options.

The first contact between the parties came about four months ago, although Cadmus had been looking at Intellect for some time.

"We struggle as a New Zealand domestic base in providing the scale to take on the international market," Phillips said. "We kind of felt that it was time, that we were big enough and ugly enough to be able to move on such a bold scheme as this."

The deal had the unanimous support of both boards in what Phillips described as a meeting of the minds "and a realisation that we need partners in business to really take advantage of our potential".

The move could fuel speculation about further rationalisation in the payment technology sector, said ABN Amro Craigs research analyst Mark Lister.

The proposed merger depends on regulatory approval in Australia and would require 75 per cent support from shareholders in both companies, Phillips said.

The merger proposal values Intellect shares at 60Ac based on a Cadmus share price of 21c.

Shares in Cadmus closed flat yesterday at 22c a share, while Intellect closed up 3Ac at 50Ac a share.

If the merger is approved, about 50 per cent of Cadmus will be owned, on a fully diluted basis, by former Intellect shareholders, with the other half owned by existing Cadmus shareholders.

Cadmus has a market capitalisation of $53 million compared to Intellect's A$28.9 million.

In conjunction with the merger Cadmus will seek approval for the issue of new shares to the value of between $15 million and $20 million.

This new capital will be used for working capital, to retire debt and for expansion of the business.

The combined company would have a turnover of more than $60 million and employ more than 200 people.

Intellect chairman Warren McLeland said major restructuring had been undertaken during the previous 18 months to position the business for growth.

"Part of our strategy has been to work with, acquire or merge with like-minded companies," McLeland said.

"The businesses complement each other well and provide a platform on which we can build a payment industry participant that will rank in the top 10 globally."

Cadmus shareholders are expected to vote on the proposal in September, possibly at the company's annual meeting.