TRS shares soar 900% after Dotcom’s Mega flags $210m backdoor listing on NZX
Shares of TRS Investments, a penny-dreadful shell company, soared 900 percent after Kim Dotcom's Mega Ltd announced plans for a backdoor listing on the NZX that would value his data storage and encryption firm at $210 million.
TRS stock rose to 1 cent, the highest in seven years, from 0.1 cent. The company would buy 100 percent of Mega by issuing 700 million new shares to Mega shareholders at 30 cents apiece, after undertaking a 148 for 1 consolidation. Mega shareholders would own 99 percent of TRS, which would adopt Mega as its name.
Mega had no immediate plans to raise new capital although it may offer a share purchase plan for existing TRS investors to allow them to build a meaningful stake after their holdings are diluted, chief executive Stephen Hall told BusinessDesk.
"Mega's fundamentally a growth company, and we do consume cash, so there's a possibility of raising capital," Hall said. The company had always planned to list in New Zealand to cement its place in the local corporate community and had made the approach to TRS. A back-door listing offered "time and cost efficiencies," he said.
The news sparked record volume of trading in TRS shares, with some 42.6 million shares, or 3.8 percent of the company's stock changing hands. At 1 cent, the company has a market value of about $11.1 million.
Dotcom staged a global media launch for Mega in early 2013 to replace Megaupload, his previous venture which was shut down in a US-led operation that alleged the file-sharing firm and its owners had committed mass copyright infringement and money laundering of more than US$500 million
This week Dotcom and his co-accused, Finn Batato, Mathias Ortmann and Bram van der Kolk lost a bid in the Supreme Court to access US government evidence against them ahead of the extradition hearing.
Pacific Fibre co-founder and internet commentator Lance Wiggs said the listing will give Mega the opportunity to bypass the traditional investor community, which may be wary of the company and its high-profile founder, and attract funds directly from the public.
"This is a good thing, because we need to broaden the investor community in New Zealand," Wiggs said. "The big thing hanging over this is really Kim himself - he's obviously their best asset, but also the biggest liability."
Wiggs said it's hard to judge the investment proposition until more details are made public, and he will be looking for monthly revenue growth. "It's the sort of thing that could be growing steadily now and take off next year" though would be less attractive it its growth was "linear."
The deal needs approval from TRS shareholders, and is conditional on regulatory approvals. Hall said Mega is aiming for a May completion, although the timeline could slip.
TRS's biggest shareholders are Paul and Lynette Choiselat, who own 73 percent of the existing shares. Melbourne-based Paul Choiselat is currently facing 25 charges relating to market manipulation and concealing his interests in listed companies, laid by the Australian Securities & Investment Commission in December.
On March 20 the Melbourne Magistrates Court ordered an adjournment for a committal mention on April 7.
TRS Investments had previously been looking at a back-door deal to list Cornerstone Mineral Corp. They ended their talks and the mining company decided to focus on the new NZX market being touted for small and medium sized companies.
Mega's existing shareholders include Dotcom's wife Mona, who owns 26 percent of Mega via MD Corporate Trustee Ltd, followed by Wolf Ortmann with 18 percent, and Michael Sorensen via VIG Ltd with 11 percent, according to Companies Office filings. John Schollum, via Hobson Street Holdings emerged as a Mega shareholder last week with a 2.3 percent stake.
Dotcom stepped back from a hands-on role at Mega last year, resigning as a director in August to focus on his extradition hearing, music streaming website and political aspirations via the Internet Party. He doesn't hold any directorships in New Zealand, and his only direct shareholding is in RSV Holdings.