Cadmus drops full merger plans

Payment technology company Cadmus has dropped plans for a full merger with Intellect Holdings but will instead buy the ASX-listed firm's key asset. In July, NZX-listed Cadmus announced plans to merge with Intellect in a bid to accelerate global expansion.

Under the original proposal 3.33 Cadmus shares or options would have been issued for each corresponding equity held by Intellect stakeholders - who would have ended up owning about half the merged entity on a fully diluted basis.

The new deal will see Cadmus acquire the company's primary operating subsidiary, Intellect International, which has a presence in Europe and South America.

To pay for the acquisition Cadmus will issue 175 million shares to Intellect, giving the Australian firm about a 39 per cent stake in Cadmus.

Cadmus director Peter Maire said both parties were committed to a common future but this was a better way of structuring the deal, which would be more beneficial for both sets of shareholders. A $10 million to $15 million share placement by Cadmus which would have been made under the original deal was not needed and the company would no longer take over the convertible notes and debt of Intellect of $12.6 million.

ABN Amro Craigs research analyst Mark Lister said the new deal appeared more attractive for Cadmus shareholders.

"It's going to mean less money to raise, they don't have to buy the debt [and] it's less dilutionary to Cadmus shareholders," Lister said.

The share price of both Cadmus and Intellect rose during the day, indicating the market viewed the new deal positively, he added.

Cadmus shares closed up 2c yesterday at 24c, while Intellect was up A2c to A39c.

Under the new deal Intellect would retain its ASX listing, change the firm's name, gain about a 39 per cent stake in Cadmus and retain a 26 per cent holding in payment software company Tafmo, which has a book value of A$8 million.

Tafmo has contracts with major banking organisations in Australia and recently broke into the Austrian market using Intellect terminals.

"Tafmo was really not considered to be of core strategic importance ... and therefore was something that we were happy to have but didn't really need to have," Maire said.

"We want the operational Intellect company which is based in Belgium and we want that manufacturing R&D part of that business - those are the bits that fit perfectly with Cadmus."

A spokesman for Intellect said the company was happy with the new deal. "In this revised deal the outcome for Cadmus is what it was desiring, to increase the size of the payments business ... and what it's done for intellect shareholders is it has maintained its Australian listing," he said.

More details on the deal's structure and dates for shareholder meetings would be available after a sale and purchase agreement was finalised in early November.

This week Cadmus said it had raised $6.2 million of new capital to boost the ability to take advantage of acquisition and joint venture opportunities. Chairman Keith Phillips also said the company would welcome merger discussion with rival company Provenco, of which Peter Maire is also a shareholder.


Cadmus

Market value, $65.2 million
Revenue, $25.7 million

Intellect

Market value, $26 million
Revenue, $34 million