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Netcomm share price to surge on takeover bid

The Netcomm Wireless Ltd (ASX: NTC) share price is set to surge higher this morning after management announced it was backing a $161 million takeover bid for the company.

NASDAQ-listed Casa Systems will pay $1.10 cash per share for 100% ownership in Netcomm, which represents a 55% premium to yesterday’s closing price of the stock.

The NTC share price has been a poor performer as it shed close to half its value over the past year and reached a peak of over $3 a share in 2016.

That stands in sharp contrast to other tech darlings such as the WiseTech Global Ltd (ASX: WTC) share price, Altium Limited (ASX: ALU) share price and Xero Limited (ASX: XRO) share price, which are all up strongly over the past 12-months.

Takeover details

The takeover is bitter-sweet news for many shareholders. While the offer price is well ahead of its current level, Netcomm is arguably worth more than what Casa is paying for it. Casa is the real winner in this transaction as the Netcomm hardware business makes a very nice fit to its software focused solution to the telecommunications market.

Netcomms board has thrown its support behind the takeover proposal but shareholder approval and the Australian Foreign Investment Review Board’s (FIRB) blessing is still needed to consummate the deal.

I don’t see either as being an issue, particularly since Casa isn’t Chinese owned and will be spared the “Huawei scrutiny”.

Don’t mind the earnings drop

Netcomm has also released its results at the same time of the takeover news. Just as well they’ve backed the takeover as the share price would have probably sunk below 70 cents.

While first half revenue increased 6.5% to a record $94.3 million, earnings growth remains elusive since its ex-chief executive, David Stewart, vacated the role. This marked the start of the long slide in Netcomm’s share price.

Netcomm’s 1HFY19 net profit crashed 38% to $2.3 million while earnings before interest, tax, depreciation and amortisation (EBITDA) suffered a 10% hit to $8.3 million.

Luckily its results are irrelevant, although if the takeover goes through, shareholders will probably have to wait till June or July to get paid by Casa.

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Motley Fool contributor Brendon Lau owns shares of NetComm Wireless Limited. The Motley Fool Australia owns shares of Altium, WiseTech Global, and Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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