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CryoLife Inc. Message Board

  • dlhild@ymail.com dlhild Jan 20, 2010 11:44 PM Flag

    Reason #1 why $2/share is unacceptable

    I’m not bashing CRY stock. I channel trade it myself. I find it to be “reasonably valued”. This is just a discussion as to why as a Medafor shareholder I would support Medafor management in rejecting the proposed $2/share offer.

    My understanding is that CRY and Medafor have a 6 year contract. Roughly speaking we are 2 years into this contract. I think the 6 year minimum purchase amount, in order for CRY to continue the contract after the end of the 6 year period, is close to $42M. This would roughly give us the following numbers. CRY Hemostase sales of $0M, $6M, $11M, $18M, $36M, and $50M for years 2008, 2009, 2010, 2011, 2012, and 2013, respectively. Using a 65%-70% gross profit markup by CRY we can roughly back into the CRY purchases from Medafor. These would then be about $1M, $2M, $3M, 6M, $11M, and $15M for years 2008, 2009, 2010, 2011, 2012, and 2013, respectively. This would mean that if CRY would buy only the minimum during the 2010 thru 2013 period, they would need to purchase $35M in product from Medafor. This would generate approximately $23M gross margin for Medafor over this 4 year period. This would roughly result in $1+ per share positive cash flow to Medafor, just from the remaining minimum purchase amount. Subtracting this $1+/share from the $2/share offer, the real offer comes in less than $1/share. We are not going to give Medafor shares away! I’m guessing CRY’s overall purchases may be around 15% of total Medafor sales. Even if my 15% is a bit off here, the point is that Medafor sells a lot of product to sources (USA, China, Japan, etc) other that CRY, so every day as we move forward in time Medafor’s total company value goes up (because of rapidly revenue growth, which is by the way, why SGA wants to acquire Medafor). This means that every day the required purchase price should logically be going up too, albeit by a small increment. CRY is probably chasing a cheetah! Better for CRY to get along with Medafor, sell HemoStase like a banshee, and improve their earnings and revenue/sales multiple. Then both companies win, instead of both losing via lawyer expenses. If you project Medafor sales and contract purchase amounts forward like this, it may permit some of you to begin to understand why $2/share is more like $0.75/share, and a $0.75/share offer is not likely to persuade many Medafor shareholders to sell their stock.

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