Cellnet to offload Mercury business

Cellnet to offload Mercury business

ASX-listed distributor puts the focus back on IT supply

ASX-listed distributor, Cellnet Group, has announced plans to split from its mobile content arm, Mercury Mobility.

Under the proposal, Cellnet shareholders will receive 1.5 Mercury shares for every one Cellnet share. The company's stockholders will continue to hold the same number of shares in the Cellnet business after the demerger. Once completed, Mercury will look to raise $3 million and apply for a separate ASX listing. The decision is subject to shareholder approval.

Mercury founder, Ben Grootemaat, will be appointed managing director of the separate company. Cellnet director, Mel Brookman, will act as chairman in the interim.

Mercury Mobile was founded in Brisbane in 2001 and acquired by Cellnet in July 2004. The division delivers mobile ring tones, content, and premium SMS services.

According to general meeting documents, Mercury is currently valued at $7.1 million, while Cellnet's total share capital is worth $38.3 million. In the last financial year to June 30, 2006, Mercury contributed $7.9 million of Cellnet's $567.4 million total revenue.

In an ASX statement, managing director, Adam Davenport, said the structural changes would allow both companies to focus on their core businesses.

"We believe that due to changes in anticipated markets and strategies both Mercury and Cellnet will be in a better position to meet their unique needs as separate companies," he stated.

News of the demerger comes five months after chairman, Reg Clairs, said it was considering offloading Mercury Mobility. At the time, he listed a trade sale or listing on the Alternative Investment Market in London as options.

Clairs said it had been looking at how get the best value out of Mercury.

"When we acquired the business, there was a reasonable amount of synergy that added to our phone business. But as time has past, it's become a very different company to the Cellnet Group," he said. "Cellnet is a physical distribution company. Mercury has a very different strategy and directive with different people and energy levels. We thought it was in the best interests of both to split.

It also meant Cellnet could get on with the business of distribution, Clairs said. This would increasingly be weighted towards IT, rather than telco products.

"Our strategy of playing a greater role in the IT industry is starting to pay off - we have developed good relationships with major vendors like IBM, Lenovo and Asus," he said. "We've recently introduced more HP product and dedicated staff. We have gotten over the issues and established ourselves as a credible supplier in IT. We're going after bigger accounts."

Cellnet will hold a general meeting on May 31 to discuss the demerger. It expects to list Mercury on the ASX on July 18.

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