The announcement that Dataram Corp (NASDAQ: DRAM) has agreed to acquire gold miner US Gold Corp shocked everyone and even contributed to a decline in the shares. But the management of Dataram neither sees anything strange with the move nor reason to worry about it. Why did the company memory company have to buy into the natural resources sector?
Dataram Corp (NASDAQ: DRAM)’s appetite for diversification
According to Dataram Corp (NASDAQ:DRAM)’s CEO, Dave Moylan, the acquisition of US Gold Corp is all about diversification. He said that for more than a year they have been looking for opportunity to diversify outside computer memory business. The natural resources sector appeared to be the most attractive of the various diversification options the executive management explored.
As such, the acquisition of US Gold Corp is expected to unlock more value for Dataram shareholders. However, those shareholders appeared worried about the deal that they triggered a descent in the shares of Dataram immediately the buyout news reached the market.
A better industry
Although not clearly elaborated, Dataram Corp (NASDAQ: DRAM) appears to believe that natural resources industry offers a better opportunity to grow revenue faster and generate higher profits than its core memory business. CEO Moylan hinted that the global computer memory was facing a difficult time due to lower selling prices and pressure on profit margins.
US Gold Corp’s portfolio includes gold and silver mining projects. Prices of gold reached a 30-year high in 1Q2016 as demand for so-called safe-haven assets increased amid fallout in the oil market.
Dataram Corp (NASDAQ: DRAM) didn’t reveal how much it was paying to acquire US Gold Corp. But US Gold Corp together with its subsidiaries are said to have a market cap of about $160 million. The agreement is that Dataram will acquire all the outstanding shares of US Gold Corp. The company will use stock to finance the acquisition.
The acquisition is expected to close in 2Q2017. But the closing of the acquisition is subject to regulatory and shareholder approval.