NZX denies Rakon waiver over China factory sale

NZX’s regulation arm has denied Rakon a waiver of major transaction rules over the sale of its China factory.

It is the company’s second bungle in a month, after the Auckland-based GPS components maker’s managing director Brent Robinson and his brother, executive director Darren Robinson, breached the Takeovers Code with share purchases in July.

Rakon announced in early July it will sell 80% of its Chinese joint venture factory to an electronics manufacturer for $US18.8 million and use the money to reduce debt.

On Tuesday, Rakon said it had signed formal agreements with ZheJiang East Crystal Electronic Co.

However, NZX listing rules state if a proposed transaction exceeds 50% of the company’s average market capitalisation over 20 days leading up to the announcement, the deal needs shareholder approval.

Rakon’s share price [NZX: RAK] has dropped 45% in the last 12 months, and at today’s price the company’s market capitalisation is $44 million.

Rakon’s board of directors, which approved the transaction, control about 30% of the company, including NBR Rich Listers the Robinson family.

Rakon’s waiver, submitted to NZX on July 15, said delays brought on by seeking shareholder approval mean there is a “significant” risk the deal would not complete by September 30, the latest date allowed under the sale and purchase agreement.

It was not practicable to seek shareholder approval when the deal’s terms “are not sufficiently detailed”, the company said.

It also threatened the plant’s closure, saying: “If shareholder approval is not obtained by Rakon, the board is likely to decide to close the Chengdu plant to liquidate the assets of Rakon Crystal (Chengdu) Co. Limited.”

Important protection
However, NZX’s regulation arm (NZXR) was unmoved.

Its decision, released this afternoon, says requiring shareholder approval for major transaction is an important protection and Rakon had given insufficient reasons for NZX to grant a waiver.

“NZXR expects issuers to structure transactions in a manner that ensures they can comply with the rules and, if required, seek shareholder approval when possible.

“In this instance, the structure of the transaction and the timetable is with Rakon’s control.”

Rakon managing director Brent Robinson told NBR ONLINE the company accepted the reasons for NZX's decision and it now plans to seek shareholder approval at a soon-to-be-announced extraordinary meeting.

He says such a meeting not likely to delay the deal now the formal agreements have been signed.

“We managed to do that a lot quicker than we originally expected."

He says an extraordinary shareholders’ meeting will consider the agreement on September 6, after the annual meeting. Shareholders will be notified as soon as possible.

As reported by NBR’s print edition, an “unusual” share price rise leading up to the factory sale announcement prompted the New Zealand Shareholders’ Association to complain to NZX.

This year’s NBR Rich List estimated the Robinson family’s wealth at $50 million, well down on last year’s estimate of $170 million.

dwilliams@nbr.co.nz