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Why the 5G Networks share price is sinking lower today

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The 5G Networks Ltd (ASX: 5GN) share price has started the week deep in the red after returning from a trading halt.

In afternoon trade the data networks company’s shares are down 8% to $1.96.

Why is the 5G Networks share price sinking lower?

The 5G Networks share price has come under pressure on Monday after it announced the successful completion of its institutional placement.

According to the release, the company raised $27.5 million through the issue of 15.28 million new shares at $1.80 per share. This represents a 15.5% discount to the last close price.

The company advised that the placement was completed with a broad range of new and existing institutional investors.

In addition to this, the company’s founder, Joe Demase, has sold 2.78 million shares for the same price. While this represents 14.5% of his shareholding, he will remain 5G Networks’ largest shareholder with a relevant interest in approximately 16.2 million shares. This is the equivalent to approximately 15.3% of the ordinary shares on issue post the placement.

The company advised that Mr Demase sold the shares in part to satisfy a personal tax obligation and to fund the exercise of performance rights which may be exercised in the future.

Why is 5G Networks raising funds?

5G Networks launched the institutional placement to provide it with the funds to make an acquisition proposal for Webcentral Group Ltd (ASX: WCG).

According to the release, the company has tabled a non-binding indicative proposal to acquire the small business digital services provider for 17.7 cents per share or $21.6 million.

This is significantly more than the 10 cents per share that has been offered by Web.com for Webcentral.

Why does 5G Networks want to acquire Webcentral?

Management believes the combination of the two businesses can generate synergies of over $7 million per annum on a run rate basis.

It also believes the proposed acquisition would be transformational for its earnings. Its earnings per share is expected to more than double on a pre-synergies basis and further increase on a post-synergies basis.

This news has no doubt gone down well Webcentral shareholders. The shares of the company formerly known as Melbourne IT are up 50% this afternoon.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends 5G NETWORK FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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