NZAX-listed Mykris sells assets to become cashed-up shell for back-door listing

Shareholders of Mykris Limited [NZAX: MYK], the NZAX-listed, Malaysian managed internet services specialist, have approved what effectively amounts to a management buy-out of the assets that will leave the company as a cashed-up shell available for a back-door listing.

At the annual meeting in Auckland today, shareholders voted in favour of selling the company's two subsidiaries to its majority Malaysian shareholder, Mykris International Sdn. Bhd (MIB) for $12.9 million and then transferring back to the company up to 80 percent of its shares and $480,000 in cash. That's despite an independent corporate adviser's report from Campbell MacPherson which said the deal was unfair to non-associated shareholders and not in Mykris's best interests.

The founders of the Malaysian internet service business, Chew Choo Soon and Chang Wai Hoong, listed on the NZAX as a compliance listing of Mykris in 2012 but have failed on their original plans to expand operations into the New Zealand market. They want to concentrate on Asia where staff and management are. The business remains Malaysia-centric, producing similar earnings to when it listed, hasn't paid dividends in the past two years and is unlikely to this year, and its shares have lacked liquidity.

Campbell MacPherson's independent report found the current value of Mykris was in the range of 21 cents to 25 cents per share and assessed their value following the sale to range between 12 cents and 19 cents per share.

"It was clear that the proposed transaction will result in significant loss of value by non-associated shareholder basis when compared against the current value of their shares," the report said. The shares have traded at between 25 cents and the current 7 cents per share in the past two years.

The company's three independent directors went against the report's recommendation and unanimously advised shareholders to accept the deal on the basis they thought Campbell McPherson had not given sufficient weight to a number of factors. These included an ongoing risk to renewal of its network licences in Malaysia because of issues around meeting regulatory thresholds for foreign ownership, any third party sale would be problematic without support of the company's founders, the current reinvestment of $3.3 million by the subsidiaries into a new corporate office in Malaysia funded mainly by debt, and many offshore investors being unable to take advantage of imputation credits available to New Zealand residents.

There was scant discussion from shareholders at the AGM over the deal, with one asking how confident director Brent King was about getting a "better company" into the listed shell.

King is something of a backdoor listing expert having done a significant number over the years, most recently the July NZAX listing of Australian Food Corp into the former Vetilot.

He said the directors have nothing concrete in mind at this stage but he personally receives at least one inquiry a week from companies about back-door listings, which he prefers to front door ones.

"It gives an element of interest for people, creates a bit more activity," he said. Investors in back-door listings know they're higher risk and potentially higher reward, King said, while the weighty prospectuses offered to investors in main board listings don't guarantee any better returns or successful outcomes.

Mykris will be left with about $1 million in cash and Bartercard Trade Dollars, King said, which would make it an attractive back-door entity.

He's hopeful of finding a sizable company in the next six months that would be "identifiable to New Zealand investors" and could migrate to the main board rather than the new NXT market.

"We're likely to move up rather than down and don't want to be the second or third company on the NXT board," he said. The NZX plans to shut down the NZAX within the next two years.

Mykris is required under the transaction to change its name on settlement in three weeks and King said it was likely to adopt a holding company name until a back-door listing eventuated.

(BusinessDesk)