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Is Fusionex International plc a falling knife to catch after falling 65% today?

Shares of AIM-listed big data firm Fusionex International (LSE: FXI) closed on Friday at 129p but plummeted as low as 38.5p in early trading this morning. What’s behind the crash? And is this a falling knife to catch?

Why have the shares crashed?

Fusionex shareholders who hadn’t already switched off for the Bank Holiday weekend received a nasty shock after the market closed on Friday. The company made an announcement at 5.30 p.m. titled ‘Proposed cancellation of trading on AIM.

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The board said that it intends to hold an EGM in Malaysia on 15 June to seek the approval of shareholders to delist from the AIM market. It said that for the delisting to go ahead it will require 75% of the votes cast to be in favour and that directors holding 41.93% of the shares have given irrevocable undertakings to vote in favour.

The reasons given for seeking to delist include the directors’ belief that the share price over the past 15 months hasn’t adequately reflected the value of the company and that the costs of remaining listed are disproportionate to the current benefits to the company. Presumably, the directors — led by chief executive Ivan Teh, who holds 40.13% of the company’s shares — are confident of securing enough votes to delist.

Private investors are naturally upset and angry about this turn of events. In a further announcement this morning, the company said that its non-executive chairman John Croft (whose role includes representing minority shareholder interests) and joint broker Peel Hunt have both resigned as a result of the delisting proposal.

A falling knife to catch?

Fusionex’s shares are trading at 46.5p, as I’m writing, making the company’s market capitalisation £25.3m. On the face of it, this is cheap for a fast-growing company that last year generated revenue of 94.6m Malaysian Ringgit (RM) — £17.2m at current exchange rates — and had net cash of RM74.7m (£13.6m) on its balance sheet at year-end.

However, I’ve written before about some disconcerting features of Fusionex’s accounts and I believe these are part of the reason why the market hasn’t valued the company as highly as the directors say it should have been.

Personally, I’ll be avoiding this falling knife, but investors considering catching it — and existing shareholders — should satisfy themselves about a number of things. Namely, that the accounts are robust, that the directors have minority shareholders’ interests at heart (despite appearances to the contrary) and that either the delisting vote will fail (and the share price recover) or that holding shares in a private company is an attractive proposition.

On the latter subject, the board said in the announcement on Friday that if the delisting goes ahead, it “intends” to put a matched bargain facility in place for trading shares, which it rightly acknowledges “is likely to offer a substantially lesser degree of liquidity and potentially less attractive share prices” than on AIM.

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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.