Eroad CEO Mark Heine has conceded recent missteps, but says his firm is now back on track. Photo / Dean Purcell
Eroad says a buyout offer from Volaris - ultimately controlled by Toronto-listed Constellation Software - “materially undervalues” its business.
In an NZX filing, the Auckland-based maker of fleet management technology said its board had told the Canadian raider its offer “falls below the level at which the board would be prepared to grant Volaris access to due diligence”.
The board said it would field questions at a shareholder meeting on July 28.
Shares, which had been in a halt ahead of the board’s verdict, jumped 6.2 per cent to $1.38 as trading resumed.
On June 22, Volaris revealed it had built an 18 per cent stake and made an unsolicited, all-cash full takeover offer at $1.30 per share - a 69 per cent premium on Eroad’s previous close that valued the firm at $232 million.
Eroad shares hit an all-time high of $6.61 in July 2021 before troughing to 52c on disappointing results and an abrupt and unexpected CEO transition.
“We’re very comfortable with the board turning the offer back,” NZ Shareholders Association chief executive Oliver Mander told the Herald.
He reiterated the NZSA’s stance that “There’s a strong argument to suggest that [Eroad’s] NZ business alone justifies the offer price, let alone the potentiality from its US operations.” (Eroad does most of its business in NZ, Australia and the US).
“NZSA would suggest Volaris consider a partnership approach through an equity stake,” Mander said.
Volaris and existing shareholders could share the risk, and Eroad would have “Better capability to support its growth in the US,” Mander said. A partnership would be an anchor holding north of Volaris’s current 18 per cent; Mander said the NZSA would not proscribe a specific stake.
“FY2023 was a year of transition after what was a pretty challenging FY2022, when we did lose focus on cost and customers and innovation,” Heine told the Herald in May, soon after his firm delivered its full-year result.
In its letter to shareholders today, Eroad’s board said its management team “continues to make compelling progress to reposition the business with the aim of generating positive free cash flow and drive profitable growth.”
The telematics firm had cut $10m in costs, with measures that included a reduction in headcount from around 650 staff to around 450.
“FY2023 was a year of transition after what was a pretty challenging FY2022, when we did lose focus on cost and customers and innovation,” Heine told the Herald in May, soon after his firm delivered its full-year result.
The telematics firm had cut $10m in costs, with measures that included a reduction in headcount from around 650 staff to around 450 as it digested recent acquisition Coretex - its rival bought in a $158m deal to help make up for lost ground and lost time in the key North American market.
The firm’s net loss narrowed from the year-ago $9.6m to $3m, in line with guidance. Heine said Eroad is aiming to be cashflow neutral by FY2025 and cashflow positive by FY2026.
Revenue was up 52 per cent to $174m as Eroad booked its first full year of Coretex earnings.
“We were focusing less on hardware and more on services. We slowed down our hardware journey. We probably didn’t invest as much there from 2017 to 2019 as we should have,” Heine said.
At its full-year result in May, Eroad said it added 404 customers for its fleet management technology in North America (for a total of 2625 subscriptions), 290 in Australia (for 1699 total) and 1556 in New Zealand (for a total of 13,387).
The firm did not announce any big deals today, but Heine reiterated a 9000-truck deal with US food services giant Sysco, first announced in November last year. The CEO said Sysco’s rollout was now under way.
He also underlined the 500-tanker deal that Eroad signed with Fonterra in January. Eroad technology will be used for telematics, video surveillance with high-resolution dual cameras (with one lens on the driver, the other on the road), and calculating road user charges.
The dairy co-operative is currently piloting its first electric milk tanker.
Heine saw the broader global shift to electric vehicles as a positive for Eroad. The transition to EVs means governments will lose petrol and diesel tax revenue, shifting focus to road-user charges.
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.