Codan (ASX:CDA) share price edges lower following divestment news

The company's sell-off announcement is not proving overly popular with investors.

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Codan Limited (ASX: CDA) shares are inching lower during afternoon trade on Wednesday. At the time of writing, the Codan share price is trading 1.35% lower at $18.27.

This comes following news the technology company is selling one one of its businesses.

What did Codan announce?

Investors are pushing the Codan share price lower after the company updated the ASX with its latest release.

In its announcement, Codan advised it has entered into an agreement to sell its wholly-owned subsidiary, Minetec, to Caterpillar Holdings Australia.

Minetec was established in 2000 and "provides unique high-precision tracking, productivity and safety solutions for underground hard-rock mines". The company uses its patented TRAX technology to allow real-time monitoring and control of mining operations. In essence, this gives miners a snapshot of the whole mine, identifying areas that can be improved in productivity and safety performance.

The deal will see 100% of Minetec shares transferred to Caterpillar for US$14 million and a volume-based earnout over the next five years. The latter relates to Codan providing manufacturing services to Caterpillar, ensuring a smooth handover.

The sale is subject to the usual customary conditions and is expected to be completed in July this year.

Why did Codan sell Minetec?

In February 2018, Minetec partnered with Caterpillar, signing a master development and marketing agreement. The two parties worked on integrating Minetec's technology into Caterpillar's systems and saw a value-added benefit.

Codan stated that Minetec has not grown to repay back the ongoing investment made on the technology business. As a result, the board undertook a strategic review of the company and decided to offload it to Caterpillar.

Codan managing director Donald McGurk commented:

As we evaluated our strategic options, we concluded that the best outcome for Minetec to achieve its potential was to discuss the transfer of the business to Caterpillar, this being seen as a logical progression following the partnership agreement put in place in 2018.

We believe that Caterpillar is the more appropriate owner, as they continue to be the market leading supplier to the mining industry, with an extensive global dealer network covering 172 dealers across 190 countries.

Codan will use the funds received from the sale to pay down its existing debt facilities. In addition, the company will focus its efforts on the recently acquired businesses of Domo Tactical Communications, and Zetron.

About the Codan share price

It's been a positive 12 months for Codan investors, with the company's share price rising more than 150%. Year-to-date performance has also tracked impressively, with the Codan share price up by around 63%.

Codan shares reached a 52-week high of $19.43 on Monday this week.

The company has a market capitalisation of roughly $3.3 billion, with approximately 180 million shares outstanding.

Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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