Market Overview

What to Do After Alanco Tech's Wild Trading Day

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Alanco Technologies (NASDAQ: ALAN) has today announced a definitive merger agreement to merge with the YuuZoo Corporation, a provider of mobile targeted social networking and targeted advertising.

Based in Scottsdale, Arizona, Alanco Technologies is a growth-phase company which researches and produces pollution control devices and markets restaurant equipment and supplies. In comparison, YuuZoo Corporation, headquartered in Singapore, has a patent-pending solution which combines a targeted mobile social network system with a mobile payment system.

YuuZoo has grown very rapidly. For example, the company reported in 2009 sales of $2 million and had no profit. In comparison, in 2010, the company had sales of $17 million and a net income of $2 million. If the profitability growth increases, its sales are expected to reach $30 million in the current fiscal year.

Alanco will issue around 34 million common shares to YuuZoo shareholders, resulting in 39 million total shares. Current YuuZoo and Alanco shareholders will own 88% and 12% of the stock, respectively.

The merger has evoked great interest from Alanco's approximated 2,700 shareholders and new shareholders alike. Alanco Technologies' stock rose sharply in value today. It has risen over 140% today on volume of over 4.1M shares, which compares to the paltry 18k of its typical daily trading volume.

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Bullish View:

  • YuuZoo enjoys a strategic focus in the fastest-growing and most populous markets, such as India, China, and Southeast Asia.
  • Companies both enjoy an introduction to a market that is powerful and growing.
  • YuuZoo will enjoy the opportunity to showcase their business plan to American investors and therefore a larger global market.
  • Therefore, the merger between the companies represents an introduction to one of the quickest-growing markets in today's society: the mobile market. Bulls might think Alanco to be a area for investment to participate in this area of rapid development.

Bearish View:

  • Alanco and YuuZoo together are from very different markets, and their merger may ultimately be not as successful as planned in the new cultures in which the companies are introduced.
  • Asian and American markets have very different demands and competitors. An investment made in haste may be unwise, and it may be difficult to analyze the growth of a merged company bridging these two disparate markets.
  • There are many competitors of YuuZoo's payment service (YuuPay). Such competitors include the widely-used PayPal payment service. Entrenched, strong competitors may create an entry barrier for YuuPay.
  • Therefore, bears recognize that the mobile payment system is a key component of YuuZoo's corporation; and due to the difficulty analyzing the potential future benefits and cash flows of the merger, investors should be cautious of a stock that is up over 125% in a single day.

The merger of Alanco Technologies and YuuZoo will undoubtedly change both companies and the introduction to new markets is relatively risky. The newly merged company could very possibly grow and be profitable, but the risk and investment of a merger could also put strain on the growth of both companies.

Posted-In: YuuZooLong Ideas M&A Short Ideas Small Cap Analysis Success Stories Trading Ideas Best of Benzinga

 

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