I believe they also need $26M in reserve to up the ante to $2 per share should they not get a majority of shares. Whether that is offered to all shareholders or just the large ones they need to win over in private transactions remains to be seen.
Correct, 8.6M but the rest of the numbers are right. Insiders and funds hold 7.42M plus the 4.09M from Maxim and 1.725M in the overallotment, which is well more than 8.6M.
No takers at what Clint wanted, but at fire sale prices typically you'll find a bidding war ensues. In real estate, this is often the tact that's taken. Even on eBay, you'll find the items that are started off priced at fair value being overtaken by the ones that start at $1. The idea is to bring out the bidders. If this company can't bring out bidders when the Pyrexar stake alone is worth $2M in a liquidation of that company, then there is something seriously wrong. But I know the product exists and works. Just watch Dr. Dupuy in action on one of the videos. Boston Scientific has a hole in their ablation lineup w.r.t. microwave plus they have the Thermatrx, a BSD developed product, so they are comfortable with the technology Perseon has to offer. And deep pockets, which is what the company desperately needs.
As near as I can tell, the downside is that the deal falls apart, the company files Chapter 7, and the shares plunge to the .20's. But a Chapter 7 may attract more suitors like Boston Scientific, who bought the Thermatrx business, a former product of BSD Medical (now Perseon), through their recent acquisition of American Medical System's male urology portfolio. It would be pocket change for them. As it stands now, they are precluded from making a bid, unless it were hostile and that would invoke a poison pill provision. So a Chapter 7 would actually be a better option than what Galil is proposing.
I'm not saying Galil will get the company, because I do believe the money will be hard to come by. To pull this off, they will need close to $20M, and then some on top of that to fund the rollout of the product. That's why the deal is contingent upon them raising $26M. $26M will be hard to come by even though they have a deep-pocketed VC behind them. VC's do not like to invest more than $5M in early stage companies and even Neuwave, with a more advanced product than Perseon, needed 38 investors to raise $25M back in June. Neuwave is a late stage pre-IPO company.
So the reality is still a Chapter 7 BK which would happen not due to whether we tender our shares or not, but because of financing of the deal. In a sense, a Chapter 7 BK may work to shareholder advantage in that it too will jettison the warrants, but it will also allow other suitors into the game, which could drive the price up. Right now, Perseon is prohibited from soliciting other offers, and if you look at how this deal came about, it was Galil approaching Perseon at a trade show in Atlanta, apparently not through their SunTrust connection. Perhaps, other potential suitors took a pass on it because of the warrant overhang.
Reading the proxy, it looks like what Galil is trying to do is remove the warrant overhang. They can do this if they get 65% of the 13.225M warrants,or 6.87M. By my estimates, Maxim has 1.725M they acquired from the overallotment option, and 4.09M from the 2.045M shares they had to eat in the firm commitment share offering. So if they tender those, Galil would only need to 2.71M to be tendered. Now insiders and funds who bought in hold 3.71M units from the offering or 7.42M warrants they will likely tender. So I think we can say, this is a done deal as far as the warrants go.
Taking a majority stake is a different matter. There were 5,750,000 offered in July, and those will not go for the $1 tender offer as they paid .90 and probably won't settle for a 10% gain. Most of the existing shareholders are probably underwater, so they may not budge as well. I think we will see a couple more rounds and maybe even some private deals to sweeten the pot, and they may well end up paying more for the additional rounds or private deals.
Here's where it gets interesting. If you tender by December 7th, you get locked in. But if they don't get a majority of the shares, and you hold out, they may come after you to sweeten the deal. If they do get the majority by then, you still get $1 for your shares. I think I'm holding out for a better deal. Especially since I bought so many shares between .27 and .32.
The sad truth is if BSCI goes that route (buying after the Galil deal falls through but before BK), existing shareholders who did not buy into the secondary might get less than $1 per share if BSCI does not offer at least $20M for the company. New shareholders with the warrants would reap the benefits.
Let me clarify what I mean by Boston Scientific sweetening the deal in bankruptcy. They would do this in order to avoid any opposition by shareholders who would be represented by a trustee in bankruptcy, not because they wouldn't get enough shareholders to tender their shares, which is not applicable in bankruptcy proceedings. In bankruptcy, the judge decides what happens, not shareholders. There may also be competition for the business from other suitors, who, like vultures, are waiting for the bankruptcy, hoping to get the company on the cheap. On the other hand, Boston Scientific might want to avoid a long and costly battle in court, and if you think about it, what they will offer is a fixed sum, not a price per share, so they may actually make a tender offer before bankruptcy, despite the warrant overhang which could actually be played to their advantage. Here's how: the share count doubles from approx. 10M to 20M if warrant holders exercise. The warrant holders exercise at .99 bringing in $$ so that BSCI effectively never pays more than .99. But now the warrant holders will tender because they are in the money. Presumably, most bought in the secondary (some 6M shares), thus you would have 16M voting for the buyout. So maybe BSCI would buy before bankruptcy for that reason and also to avoid competition and costly litigation. You may be right on the NOL's. For us, a merger would be best as we would still retain an interest in the company.
Perseon has a poison pill which makes it difficult to go hostile. Yes, there are big pockets behind Galil, but if you look at Neuwave's funding, which has a much more diversified capital structure behind it (Neuwave has arguably the most advanced microwave thermal ablation equipment), the most they raised was $25M in the latest round with 38 investors, and that was after coming up short in prior rounds:
Date Offering Amt Raised #Investors
2009-05-18 1,749,997 999,999 2
2010-12-15 8,000,000 8,176,912 26
2012-08-02 19,000,000 14,000,000 22
2014-09-30 11,640,127 4,756,390 31
2015-05-06 25,315,000 25,309,333 38
Total $65,705,124 $53,242,634
That is the day that will live in infamy. The PRSN share price will bomb if it fails to consummate. I do believe Galil will not be able to raise $26M by December 7th. It will take several months because they will need to tap multiple VC's for this sum. Most only risk $5M or so. However, I also believe there are several others that will step up to the plate, e.g. Boston Scientific, which bought American Medical Systems urology portfolio in March for $1.65B. That portfolio contains Thermatrx, which is BSD Medical technology which they sold to American Medical Systems for $33M including earnouts. Boston Scientific also bought Celsion's BPH microwave technology for $60M, so $10.6M should be a steal for them. They might even sweeten the deal, but if they pay more, it will be after a Chapter 7 is filed to wipe out the warrants.
Galil didn't back out. Endocare did, ostensibly because the FTC couldn't complete their anti-trust investigation in a timely fashion. Endocare then decided to merge with Healthtronics instead. BTW, Galil had gotten $52M back in 2007, so it is possible they can raise $26M, though getting it done by December will be difficult.
Actually, my insight was spot on. Predicted 1:10 reverse split, predicted to within 1 day when the company would announce it, predicted company would run out of cash in January, predicted mid .20's bottom, predicted $1 sale price for the company. It's all here on this board and elsewhere.
Clint's salary is not $250k, it's $350k plus the $150k bonus. Now we know why the SG&A is way up.
Clint Carnell: $350,000 plus $150,000 bonus
Brian Meltzer: $250,000
Benjamin Beckham: $231,000
Jen Hoglin: $220,000
Bill Barth: $200,000
Todd Turnlund $194,741
As I predicted $1 per share buyout. But the story is not over. Check your e-mails. Drdreback, spread the word far and wide.
The concern that the deal won't go through is based on 51% of stockholders not tendering and Galil not being able to raise $26M. They are backed by 3 VC's, one of which is a $3B fund, so I don't think the latter will be an issue. They are getting this company on the cheap if you consider the Pyrexar stake is worth $3M.
Why Butch, Bill, and Sal of Maxim were in awe of Clint is beyond me. He destroyed shareholder value with his scorched earth policy. Of course, he gets his $150k bonus next month, but at least his stock options are worthless.