Two losers in the mobile computing business have leapt into each other’s arms with the $6m reverse take-over by Cambridge-based Tadpole Technology Plc of RDI Computer Corp, from Carlsbad, California. The main justification for the merger is that the two companies are big competitors – effectively the only players – in the Sun Sparc-based portable computer workstation market. What both companies have most in common however is a hugely unimpressive financial record. With the problems at home, South Korea-based Trigem Computer Inc must have jumped at the chance of getting rid of its RDI subsidiary which has devoured $19m of its parent’s money and still can’t make the operation pay. In the year to May 31, SDI recorded a loss of $4.1m, 61% up on the level two years earlier while revenues between 1996 and 1998 slumped 17% to $17.1m. Tadpole directors concluded that: RDI’s historic cost base and research and development expenditure has been too high, given its turnover. The same could be said for a serial loss-maker like Tadpole whose revenues have also been on the slide, though it announced in June mid-term losses down from 2.6m pounds to 994,000 pounds (CI No 3,438). Directors say Tadpole is still loss-making. The real justification for the deal is that the two companies were fighting for a niche market too small to make money for either of them. With overlaps in the sales, marketing, manufacturing and design, Tadpole sees economies in the merger which will also add to its product range RDI’s PrecisionBook line, aimed at the Hewlett-Packard market. Tadpole is paying for the acquisition with a rights issue designed to raise around $8.5m net. While it is difficult to believe now, Tadpole’s shares stood around the 320 pence market four years ago but currently languish at 18 pence. So how to you persuade disillusioned shareholders to take up a rights issue? The answer provided by the company’s financial advisers is to price it at a meager 10.25 pence. The question now is whether the operation can be turned round quickly, particularly as the market is unlikely to welcome any further attempts to raise new money. Directors say that the combination of the two should in the medium term provide sufficient working capital to the enlarged group. For the future, Tadpole’s hopes rest on its Cartesia Java-based mobile device aimed at field computing for workers in utilities. The market is estimated at 500,000 units over the next three years, a larger niche than Tadpole is used to but one it hopes is to small to attract any of the big player. RDI’s big value in the long term will be to give Tadpole a sufficient US presence to make Cartesia a money-maker.
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