Mega float opens door
ANALYSTS and brokers say the back-door sharemarket listing of Kim Dotcom's Mega will pique the interest of some but is unlikely to get mainstream investors on board.
NZX-listed shell company TRS Investments announced yesterday a plan to buy 100 per cent of Mega for $210 million, which will be satisfied by the issue of 700 million new shares in TRS to the existing Mega shareholders at 30c apiece.
It will then undertake a 148 for 1 consolidation of its existing share capital, leaving Mega shareholders owning 99 per cent of TRS and adopt the Mega name.
Mega chief executive Stephen Hall said the proposed deal had been in the works for some time and he hoped it would be finished by the end of May.
"It's obviously been part of Mega's strategy for a long time to become listed," Hall said.
"There's just so much interest in Mega within New Zealand and globally and investors are keen to be part of the story and keen to invest.
As a growth company it will need capital and we're keen to open it up and let people get involved."
Dotcom launched Mega last year to replace Megaupload, his previous venture which was shut down in a United States-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.
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.
Mega's existing shareholders include Dotcom's wife Mona, who owns 26 per cent of Mega via MD Corporate Trustee, followed by Wolf Ortmann with 18 per cent, and Michael Sorensen via VIG Ltd with 11 per cent.
James Smalley, a director at broker Hamilton Hindin Greene, said there almost certainly would be interest in the company based on the amount of media attention Dotcom attracted.
"It's what he does - the name itself might generate interest."
But whether it was a good investment would come down to its fundamentals.
Mark Lister, head of private wealth research at Craigs Investment Partners, said it would strike a chord with some.
"I'm sure there is someone out there who will want to have a closer look but I can't see it fitting our mainstream investment portfolios," he said.
Lister said the firm looked for companies with strong governance, a track record of performance and a good outlook for future growth.
"Over the course of time Mega might be able to tick a couple of those boxes."
Lister said the back-door listing would also put some people off. "There will be some people that would prefer to see a full prospectus, management roadshow and brokers providing research."
Technology investor Lance Wiggs said Mega was not something traditional investors in New Zealand would look at.
"I guarantee you the banks and the analysts and everybody are looking at this and going, 'What the heck?"'
Wiggs said that while Mega had boasted good customer numbers in the weeks after it launched its growth and the number of paying clients it had attracted since then was likely to determine appetite for shares.
"There's definitely a place for them in the [cloud-storage] eco-system," Wiggs said. "The question is, do they have the credibility in terms of revenue growth and the team and the ability to raise money to keep up with the pace and get to the other guys?
"Until we see those numbers we just don't know."
Technology investor and commentator Ben Kepes questioned Mega's ability to compete in the market. "With vendors like Google and Microsoft joining the increasing number of companies delivering these services on a cheap or free basis, it leaves questions about the ability of Mega to execute upon a truly differentiated service," Kepes said. "If the model is to enable consumer file sharing then they are up against an almost insurmountable obstacle."
TRS shares rose 900 per cent to close on 1c.
What is Mega?
• Mega is a company which allows people to store electronic files in the cloud - anything from photos, to music and movies, to a copy of your passport.
• Mega believes its strength lies in the level of privacy and security the website provides its users.
• All data held with Mega is encrypted and the user who uploads a file controls who gets access to it.
• The company itself does not know what a user is storing or sharing over the service.