Until stocks generally and CRY specifically tanked, I thought CRY would make a tender offer. They still may. However, I now think any tender offer they make in this environment will likely be priced too low. If priced too low, it will fail. Let's look at things from an all stock tender offer perspective. CRY's lower price puts any acceptable offer in the vicinity of a 1:1 exchange. For all practical purposes, this would add 22 million shares to CRY's 28 million shares putting the post-acquisition total around 50 million. I don't think CRY could absorb this kind of dilution without shareholders throwing SGA out on his ear. This might happen too, because I don't think CRY's poison pill would activate. With all these new shareholders, who knows what would happen.
Now let's assume that any tender offer made fails. This would cut CRY's 2010 cash flow to about $13 million. If you apply a 40% tax rate and divide by 28 million shares, you get something close to $0.28 EPS for 2010. Note that the slope to the EPS line would now be flat to slight down. Because of the uncertainty pertaining to CRY's future sales (BioGlue coming off patent), declining cash flow, and flat to declining EPS (as you project forward) CRY could arguably go lower based on the merits. I'm not trying to bash here, rather I'm just putting forth reasoned analysis. In this market, I find it unlikely that shareholders are going to ascribe value to unknown pipeline products. In this environment, P/E's are apt to be low too.
This is what CRY and Medafor should do. They should kiss and make up, even if they don't like each other and don't trust each other. Then both companies should agree to sell as much HemoStase as possible AND try to adhere as close as possible to the existing contract. Both CEO's should make this clear to their respective distributors and sales personnel. Then every few months the accountants, DAL and GT, should try to work out the cross selling numbers. Then whoever owes what to who should pay the other party. Along with this, they should put in place a 'binding arbitration' agreement. This way, if DAL and GT couldn't reach agreement, the arbitrator would arrive at the cross payment amount. Obviously, this would require that Medafor deliver HemoStase to CRY promptly upon CRY's placing an order.
If both companies decided to kiss and make up, then CRY's sales and cash flow would continue to improve (barring a sharp fall off in BioGlue sales). Ultimately better cash flow and EPS numbers translate into a higher stock price. I'm sure that to some degree both parties have been culpable. But let's get over it. Both parties would independently benefit. Ultimately, CRY would benefit from their Medafor stock holding as well.
One more point. Up to now Medafor and CRY have been doing some damage to each other, because they have been incurring legal costs and management distraction. However, starting in June is where each company really starts to do serious damage to the other. This is because it will start affecting sales, cash flow, and EPS in a serious way. It is time to kiss and make up, because this is becoming entirely too dysfunctional.
But common sense and mutual success do not always prevail.