Amcom options initiative to raise $21m

Stuart Corner
Wednesday, 07 October 2009 14:45

IT Industry - Strategy

Perth-based telco Amcom (ASX: AMM) has announced plans to cancel 81 million outstanding options and to underwrite the exercise of 150 million 17 cent options: a move that will net it $21m in cash and , it says, alleviate concerns of its share base being diluted and leaving it with too much cash had all the options been exercised.

MD Clive Stein told a Corpfile Open Briefing: "there is a perception amongst some market participants of a potential overhang of Amcom shares due to the number of options potentially converting by year end. This transaction provides certainty regarding the final outcome, which we believe is favourable for our shareholders...We have taken prompt action to resolve their potential dilutionary impact on our capital position in the most efficient manner available to us."

He added: "If all the options converted it would have left us with a surplus of capital. This transaction has been structured to further strengthen our capital position to a sensible level, leaving us in a net cash position. This enables us to actively pursue growth initiatives, but does not put pressure on us to act hastily to put surplus capital to use...It is worth noting that these options have only moved into a consistent 'in-the-money' position following the release of our full year results in August "

He said the funds raised would be used, in part, to reduce debt leaving Amcom with net cash. Beyond that the company intended to expand its fibre network and had its eye on potential acquisition targets.

"Demand for our fibre networks remains resilient and this is the primary driver for our guidance of double digit growth for FY10. When we deploy capital to expand our fibre footprint through new connections we achieve very high rates of return for our shareholders, so we will continue to deploy capital for organic growth. We will also look at other opportunities that are complementary to our core business that deliver strong shareholder returns. We have potential acquisitions under consideration, but we will only take these further if we believe we can deliver value to our shareholders."

Daniel Blair, telecoms analyst at Southern Cross Equities was not wholeheartedly supportive of the move, saying: "We acknowledge the markets concern [regarding dilution of shareholdings] but question Amcom's approach. We believe Amcom would have been stronger from the anticipated $46m proceeds [had the options been exercised], creating future options including; capital management and M&A.

Blair has upgraded his price target from $0.25 to $0.29 saying he believes Amcom's initiative creates "a stronger path for the share-price towards our price target." Amcom shares closed at $0.225 today, 07 October. $0.005 down on their opening price on the day after peaking at $0.25.