The latest Investing Matters Podcast with Jean Roche, Co-Manager of Schroder UK Mid Cap Investment Trust has just been released. Listen here.
The US approval timeline stretches beyond six months but the Recordati backed launch is the short term pointer. The milestone payment is really getting me excited now - it is evidence that at least Recordati are still interested. To me, the negotiated reduction in contract values is not a surprise - the surprise that I had was that we could not develop a six dose canister and that obviously set us back with respect to Recordati. Launches in more than one European region I would read as a real short term positive in the next six months.
Definitely 5 years, I remember the restructure that effectively gave JG a hefty bonus upon the transfer of Plethora to another organisation. Never rule out a takeover, and when you examine what has happened over the last 5 years, I believe there are more reasons to wait than to proceed with a formal bid. As little as I trust JG now, he has told me some things in the past that have rung true, one of which was him questioning (at the time we were testing the 6 dose canisters), why an organisation would risk their balance sheet. I think the same applies now and if I were being brutally honest, I think US approval means more than EU which potentially means a little longer to wait before any more movement. I am very happy to hold and excited about the next six months.
Payment yet to be made though. The news will be announced upon receipt of the 4m euro - transferring of money is key as JG let us down last time in saying that the 12 dose canister released the 6m milestone payment. It also represents a defining moment and a commitment by Recordati. Potential investors could be forgiven for waiting until we see the colour of Recordati's money - those with an appetite for a little more risk will get on board earlier. Alongside some positive publicity, we could be seeing an exciting couple of weeks followed by the long awaited commercial launch. If there is a stakebuilder, this would be a good opportunity to increase their holding, particularly after the miserable few months we have been enduring. Cash in RP's pocket will also increase the like for like value of RP for any potential takeover compared to where we are today.
I thought the last news was that they were close to agreement and was the cause of the delay
Given volumes after UK launch then subsequently, it would suggest these are tightly held and will move quickly...
News on the above coming perhaps?
Yes, it works out at 1:4 - one new share per four held. That equates to a new share price of 5p given the closing price of 1.25p. The acquisition of N4 is in two stages, the first tranche of 4,810,800 new shares will occur immediately. The second tranche of 4,591,400 will only be payable subject to the share price rising to 15p for ten consecutive business days within a two year period. The placing is at an initial premium of 40%, being at 7p 15p appears significant and would reflect 200% growth. But don't be mislead. On 3rd May this should show as being 300% up simply due to the share consolidation - this of course is not real growth. 15p will look like 1,100% on 3rd May..... The appetite for N4 will of course dictate where this closes but, given what we are dealing with, this could easily exceed all expectations and the 15p target could be shattered very quickly indeed. Who knows what will be - I am very excited but whatever happens, I am confident that this will show a huge swing on 3rd May and sit on top of the day's risers.
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The first piece of the jigsaw is now in place, the dilution for the 51% of N4 is just under 16%. Nigel had a holding exceeding 17% of ONZ that he had acquired through both share purchase and through the original N4 49% acquisition. Companies House is now updated and the shareholders of N4 are ONZ 49% and NT 51%. Therefore the new shares will directly increase NT's stake in ONZ by 24,272,807 shares. This will result in him owning approximately 52m shares in ONZ, equating to 24% of the enlarged shares issued. Importantly, this keeps him below the 30% threshold and also enables him to participate in the forthcoming open share offer. Exciting times ahead.
Your shares should remain as they are, the number will probably remain the same but the name changes... the biggest change will be that there will be new shareholders and the number of shares in issue will increase. There are two key things to look at - the dilution as a result of the RTO (the 51% of N4 coming across) and the dilution as a result of the placing. I believe Nigel will end up with just under 30% of N4 so the amount his current N4 holding will convert to will be dependent upon the placing price Gavin can achieve and the number of shares that will be issued as a result. Neither N4 shareholders (mainly Nigel who I suspect owns around 30% currently) nor the new placees will be giving things away, but the new fully funded N4 is almost certainly worth more than the sum of the parts. Given that the RTO will technically go before shareholders for approval, we do have an emergency brake chord to pull if the deal favours one side more than another. These checks and balances are in place to protect shareholders so I therefore expect that our interests will remain high on their list in any negotiations.
Take a step back. Last year Nigel Theobald owned 85% of N4. As an entity, N4 secured some choice rights in the pharmaceutical sector but needed the funds to exploit them. What we have now is a logical conclusion. Credit to Gavin as he saw the opportunity and used ONZ as the conduit. Now N4 has access to funds and NT will remain a director and probably retain just under 30% stake in ONZ to keep him within the takeover rules (post dilution). In my opinion the N4 RTO was never really in any doubt. The only question was the funding and the terms of the placing. It is also my opinion that the level of dilution will be dependent upon the price achieved for the placing as NT will not want to exceed 30% of ONZ. For me, £3m is a drop in the ocean compared to the value of a developed product and the resulting market capitalisation would eclipse this figure. Is £3m enough? Perhaps not for full commercialisation, but it could be sufficient to gain EU approval. Share lock-ins may also be relevant.
That's the news I was hoping for.....
This is the only apparent means by which ONZ can continue to operate. A RTO will result in the enlarged group needing to be re-listed. Are there any real benefits for N4 shareholders in a RTO? Yes - 100% of N4 under one roof is better than 51%, they could negotiate a larger holding and ONZ have other resources, not to mention the ability to introduce equity is enhanced, however there may also be reasons why N4 considers it better to leave ONZ to the wolves. I do not see N4 as being particularly concerned as to the fate of ONZ. They will retain a controlling stake whatever the outcome. What I imagine is also being considered (plan B from the ONZ perspective) is a reverse takeover from another entity, possibly with little or no market value. The new investment criteria will be aligned with the current ONZ portfolio and shareholders will retain their interest in the enlarged entity minus the necessary administrative and relisting costs. The past few months may well have been spent finding the path of least resistance to the preferred outcome- a N4 RTO - but the contingency plan should always have been available. The absence of news to me suggests that ONZ and N4 have not agreed on the percentage holdings of the enlarged group and that both RTO options are still available.
There is no way the investment policy can be fulfilled without incurring serious costs. The only way out here is a reverse takeover. So why would N4 RTO ONZ and what is the benefit of doing it after the suspension rather than before? The deal would result in us all holding a percentage of N4 which in turn would regain 100 percent of itself and its acquired licenses. How much would existing ONZ shareholders ultimately hold of N4? It would also potentially set N4 up nicely for a subsequent sale onto a larger pharmaceutical. I see no other sensible option with the only other possibility being delisting
Was the problem due to the nature of the primary investment being outside the natural resources sector? If so, presumably the suspension can be resolved through a shareholder agreed amendment?
Fundamental changes of business 15. Any disposal by an AIM company which, when aggregated with any other disposal(s) over the previous twelve months, exceeds 75% in any of the class tests, is deemed to be a disposal resulting in a fundamental change of business and must be: conditional on the consent of its shareholders being given in general meeting; notified without delay disclosing the information specified by Schedule Four and insofar as it is with a related party, the additional information required by rule 13; and accompanied by the publication of a circular containing details of the disposal and any proposed change in business together with the information specified above and convening the general meeting. Where the effect of the proposed disposal is to divest the AIM company of all, or substantially all, of its trading business, activities or assets the AIM company will, upon completion of the disposal, be treated as an investing company. The notification and circular containing the information specified by Schedule Four convening the general meeting must also state its investing policy to be followed going forward which must also be approved by shareholders. The AIM company will then have to make an acquisition or acquisitions which constitute a reverse takeover under rule 14 or otherwise implement the investing policy approved at the general meeting to the satisfaction of the Exchange within twelve months of becoming an investing company. Where an AIM company proposes to take any other action, the effect of which is that it will cease to own, control or conduct all, or substantially all, of its existing trading business, activities or assets (including the cessation of all, or substantially all, of the AIM company’s business), the above requirements to notify the action, publish a circular setting out its investing policy going forward, obtain shareholder consent for that investing policy and implement it within twelve months of taking such action, will apply. Shareholder consent for the action itself will not be required. Source; http://www.londonstockexchange.com/companies-and-advisors/aim/advisers/aim-notices/aimrulescompaniesmay2014.pdf Supporting information; http://www.lseg.com/sites/default/files/content/documents/aim/AIM_Rules_for_Companies_July16.pdf
Totally de-risked his holding. The price fall was due to a short term abundance of shares - I feel comfortable that I topped-up last week although I could have had a slightly better price this morning, the fundamentals remain unchanged.
Those 100k share I bought for 1.374 I can immediately sell for 1.361 I am becoming increasingly excited with what N4 are doing. I love the business model and I can see N4 being worth many multiples of ONZ's market capitalisation. A patented fast-acting form of Viagra - everyone knows that this will sell.
Likewise. Been here for a while now. This is a classic case of the wider market not knowing what it is sitting on, especially given how far down the line this ED product is already. The £3m market capitalisation looks very attractive indeed. The question for me is not if but when this multi-bags.
Agree with almost everything you say, but I would add that I think a Mcap of £60m for FUM is on the low side. I would also say that the means of applying the FUM treatment actually is a benefit in some cases but I would not dispute that a fast reacting ED tablet would be preferable for a high percentage of the market. I'm in both by the way.