Mooring merger gets mixed reaction

The vacuum mooring technology in action. Picture / Chris Skelton

The proposed merger of Mooring Systems with its larger European licence-holder, Cavotec, has drawn mixed initial reactions from investors but the company is confident of support.

Chief executive Peter Montgomery said shareholders were feeling their way through the proposed deal announced last week and trying to understand what was going on.

"I've had some extremely positive calls once people grasped the significance of what we're doing here," he said

Privately owned Cavotec makes mobile power supply products used at ports and airports and has annual sales of $200 million.

NZX-listed Mooring Systems makes automated vacuum-based devices for mooring ships and had revenue of $1.8 million in the year to March 31, with a net loss of $675,000.

Mooring Systems plans to issue 50.9 million new shares to Cavotec shareholders, giving them an 80 per cent holding in the merged company - which will be based in Christchurch, listed on the NZX and called Cavotec MSL Holdings.

ABN Amro Craigs analyst Selwyn Blinkhorne said the deal looked like a reverse takeover of Mooring Systems.

"One company is profitable and has earnings growth and the other is basically a start-up with no earnings," Blinkhorne said. "And the company with earnings, those shareholders will end up with 80 per cent of the merged company."

However, Mooring Systems had a good product and it would be surprising if the deal did not go through.

"So they [Mooring shareholders] give up a little bit initially but they get somebody like Cavotec who have been around for 30 years, have a good relationship with most of the people in the market, are profitable [and] financially sound," Blinkhorne said.

Mooring Systems' share price closed down 5c yesterday at $3.80, continuing a steady fall from $4.15 since the deal was announced with an accounting value by Deloitte Corporate Finance of $3.72 a share.

An independent report by Crighton Anderson valued Mooring Systems shares at between $1.92 and $3.02, and said the market price incorporated a speculative premium for a high-risk enterprise with potentially high returns.

Blinkhorne said a takeover bid by Cavotec would probably have needed a premium price to the trading price. "They probably weren't inclined to pay a huge premium for something that wasn't making any money yet."

Montgomery - the largest shareholder with 18.9 per cent - rejected the suggestion the deal was a reverse takeover.

"This is two companies that really like working together, have a commonality in terms of our view of the world, want to achieve and grow and we fit well together."

Montgomery said Cavotec saw potential in the product and benefited from access to capital markets and an international profile.

Some shareholders wanted to look at Mooring Systems from a blue-sky perspective but the company had a duty to protect investors' funds.

"I don't want to be in a position where we risk everything and if we get the timing wrong it could have serious repercussions for the ability of the business to sustain itself."

Mooring Systems' board will recommend the deal to shareholders, and it will take effect on January 1 if it receives 75 per cent approval at an October 12 meeting.