Takeovers are beginning to fall over and small caps with stretched balance sheets are having to raise money in the worst market environment since 1987.
Opportunists have already begun hunting for bargains on the ASX, while capital raisings that turn over control of a company for rock bottom prices have begun to pop up.
BuildingIQ (ASX:BIQ) said today a takeover by a Canadian company had fallen through, but it’s quickly replaced that with a $5.9m investment that will see the new investor, US firm SNAPS, take majority control.
Of the total sum, $5m has been raised at 1c. The rest was raised at 1.8c. BuildingIQ’s share price has been badly deteriorating since October last year, wallowing around 1c in 2020.
The deal will hand SNAPS 67 per cent of BuildingIQ for a price near the company’s all-time low point.
Pharmaceutical company OBJ (ASX:OBJ) today also cancelled a takeover, nixing its plan to buy Nutrition Systems.
“Having regard to the current extreme market volatility globally, restrictions on travel and investor presentations, and with no visibility as to how long it will last, the directors are unable to raise the required funds on the agreed terms and within the timeframe in this environment,” OBJ said.
It had offered $50m in cash and $35m in stock. OBJ’s stock was suspended in November last year at 1.5c.
Cashed up opportunists have started putting feelers out for bargains.
Warrego Energy (ASX:WGO) today rejected an offer from its partner in the West Eregulla gas project in WA.
Strike Energy (ASX:STX) made an unsolicited, conditional, non-binding and indicative proposal — the loosest kind of bid — of 1.2 Strike shares for every one of Warrego’s.
Warrego stock is worth 8.9c this morning, around 2018 levels before then-Petrel bought Warrego and before the West Eregulla-2 well results which indicated the pair were sitting on a major gas resource.
Strike stock is, however, also back around levels seen in July 2019 before the well results came in.
Russian gold miner Nordgold has offered 46c a share for Cardinal Resources (ASX:CDV), a price the Ghana-focused explorer has only beaten on the market for one period in the last year.
A week ago Nordgold bought 19.9 per cent of Cardinal, a level past which it is required by law to make a takeover offer in order to accumulate more stock. It also made a non‐binding indicative and conditional proposal.
EG Fuel Co is also pushing ahead with a takeover of Oliver’s Real Food (ASX:OLI), made two weeks ago.
The offer of 10c a share, or $27m in total, capitalises on the food company’s comeback since early December 2019, but offers no premium to the 10.5c high reached in January.
Oliver’s has entered into a scheme of arrangement with EG Fuel Co.
Raising capital in a crisis
Capital raisings are beginning to be announced as small caps find they can’t wait any longer for the market to recover.
One broker spoken to by Stockhead suggested they will be very busy in about a week, as companies raise capital ahead of the March quarter reporting deadline to ensure they have the requisite two quarters of cash to cover operations.
Arrow Minerals (ASX:AMD) said today it had raised money near its 52-week low of 4c. It’s raising $335,000 at 5c a share from sophisticated investors.
Its 52-week high is 17c.
The money is needed to ensure it can keep exploring in Burkina Faso and Australia.
Communications company Norwood Systems (ASX:NOR) raised $200,000 at 2.5c a share to fund working capital, a term that describes the money needed to keep a company running.
Its 52-week low is 2c, and its high is 7c, reached when global markets peaked in February.
Dragontail Systems (ASX:DTS), a company that manufactures robot pizza makers, said today it entered a deal led by its US investors to raise $19.25m via convertible preference shares worth 14.06c.
Dragontail stock is up 22 per cent today to 10c (just above its year low of 8.9c) but well off highs seen a year ago, in October, and in January.
It’s using the money to pay back loans owed to the two US investors, meaning it’s debt free.
Other companies have been reassuring investors they are well enough capitalised to last for the next few months.
Companies law suspended
Reassuringly for some companies however will be the government’s changes to insolvency and bankruptcy laws.
Part of Sunday’s second coronavirus package includes a regulatory ‘shield’ that will protect normally profitable companies if they find themselves in dire straits due to travel bans or non-essential service shut downs.
For the next six months directors will not be held personally liable if their company trades while insolvent.
The limit where a creditor can force a business or an individual into insolvency proceedings or bankruptcy has also been lifted 10 times to $20,000.