Member Info for Sorcerer

I think SIPP may be different to ISA, but my recollection is that ii have advised they will transfer the ISA shares to a suitable trading account, or open one if one doesn’t exist already. Don’t know how that will work, as they obviously can’t be traded through that account, but presume it’s to provide a record of the holding. Isn’t the whole point of the matched bargain facility with JP Jenkins to avoid what you have been told?

Delisting is next week - Monday is the last day of trading.

Something’s afoot here - interesting few days ahead

I’ve only seen the one RNS today which was a director buying shares, which appears to be the reason for the sp rally today.

This is not surprising as directors are always best placed to understand the real value, so it’s reassuring to see them building their positions, even if it is off the back of all time lows. Wouldn’t be surprised to see a few more of these over the course of this week, as it will be the last opportunity to acquire shares on the open market ahead of the delisting. After that it will be matched bargains only, so sellers will set their price and buyers either take it or leave it. Will be interesting to see where the sp gets to over the next five days.

UncleJohn, I agree with you - a takeover is very possible in the current circumstance, for reasons that I have outlined previously. There is huge potential value here, it just needs someone to make a move. For the reasons outlined below, I think a takeover before delisting would be at a lower price than one afterwards, so I guess it just depends on whether there is sufficient appetite in the short term.

Beyond a takeover, I think that the delisting decision has clearly not been welcomed by the market, but there are a couple of things about Destiny that make the future as an unlisted (for now) company a bit different from so many other companies that have gone, or are going the same way.

Firstly, there is no majority shareholder, or even a group of majority shareholders. None of the major shareholders, directors included, hold more than 6% or 7% of the company, and collectively those who own more than 3% only own around one third of the shares in issue (and that's across a dozen or so different entities). So, we are not in the position where a majority shareholder gets to call all of the shots after delisting - quite the opposite in fact, we are in the position where anything the company decides to do will need the support of a very broad base of shareholders.

Secondly, and a point that has been completely overlooked by the market (because of the way the market values things), a fundraising or other financing deal has not been done ahead of the delisting. This is really important, because in other examples I have seen, the fundraising is done first (with the SP on its knees) and that creates massive dilution ahead of the delisting, both suppressing the SP further and introducing a majority shareholder who has a material level of control of the company after delisting. That hasn't happened here, the fundraising or other form of financing will be after the delisting and can be based on a much more sensible valuation than the shares in issue multiplied by the current SP, which as we know both drops ahead of a finance deal and then usually again once the deal is announced. The lack of liquidity in the shares of a delisted company may actually work in PI's favour in that circumstance, as the SP can't be trashed during the process of raising the finance. The company can negotiate from a position of intrinsic value, rather than the arbitrary value placed on the company by a market that knows a placing is coming.

So, for the above reasons, I think a takeover is very possible, but I also don't think it's not the only way that shareholders may see significant value from this, assuming the delisting goes ahead.

We now have the details of the proposed EGM and likely delisting date, which, given how close they already are to the 75% threshold is likely a formality now and SND will delist from 21 August.

Around 28% of the company is still held by smaller investors, including PI, so it's a minority, but not insignificant. Given the firming up of the dates, I've been re-testing my thinking about how this might now play out and I think there remain a number of outcomes for PIs from the point, which I've set out below. I'd be interested to hear from others about whether there are any others that I've not thought of.

In the short term, the only things that are likely to lead to any improvement in the SP are either a takeover offer from a party unconnected with current proceedings, or ROX offering to buy up any remaining shares before the delisting. On the former, I think that remains a possibility, albeit that the window of opportunity is narrowing. In some ways it would make strategic sense for a takeover offer to come when the SP is at its lowest, but it could also be argued that the current SP is largely irrelevant, as any offer would anyway need to be materially above 10p per share for ROX to accept it. That said, even at 10p SND is ridiculously undervalued, so it remains a possibility. On the latter, I can't see why ROX would make an offer before the delisting, as any such move would probably fall foul of the waiver (and in fact, I think I recall reading somewhere that they either not allowed to trade, or have undertaken not to).

After delisting, both the above possibilities remain, but I think an offer from ROX after the delisting is a distinct possibility. While it's positive that a matched trading facility is being put in place, realistically I think there is unlikely to be much liquidity and trading on a day to day basis. That doesn't mean that the shares won't be tradeable, but it will be very difficult to determine a fair price, other than when we get the statutory information in the accounts etc. So it would be easy for ROX to make an offer quite quickly (which could be above or below 10p a share) that some shareholders would find attractive.

Beyond that, a takeover is always a possibility and you would think that would become more likely over time, as the business grows and becomes profitable again. There is also the possibility of relisting in the future, which is likely the most distant option for shareholders in terms of timeframes (likely 3 years minimum, I would guess). That said, ROX must be banking on one of these two options, as they will need an exit event to realise their gains, so this probably represents the scenario with the greatest returns.

So, those are the options for PIs as I see them - there risk in holding through into delisting (specifically that the minority shareholders gets squeezed out by future corporate actions), but that does not come without reputational risk for ROX, so it's a finely balanced decision.

It’s only a proposal at the moment - circular will be issued in August and then needs an EGM and vote. Assuming it goes ahead, shares will still be traceable via matched bargain facility - all in the recent RNS’s.

I think this was a case of packaging up all of the bad news in last year’s numbers, against which a stronger performance in the current year can be demonstrated (which the forward looking statements point towards).

Two particular things of significance to note from the RNS:

1. SND expects to be EBITDA positive by Q4, which reduces the risk of further material funding being needed in the future.

2. There WILL be a matched trading facility for investors after the delisting - no doubt this will be through JP Jenkins or similar, in line with what other firms have done. This is a material change, as this was specifically excluded in previous announcements and means that there will be a mechanism for PIs to trade after the delisting.

Lots of people are clearly anxious about the prospect of delisting (for obvious reasons), but the sp drop (from a level that was already a historic low) now values the company at not much more than its cash position. And yet, this is a business with an existing partnership that’s expected to be worth hundreds of millions of dollars and a completely new class of antibiotic (XF73) that’s could transform the risk of post-surgical infections and is projecting peak annual revenues into the billions.

Is it any wonder that the Board are looking to take the business down an alternative route to what AIM is offering them? That said, I think there are three ways that existing shareholders could still see a significant return here:

1. Monday’s announcement prompts one of the current interested parties to firm up an offer of a partnership deal ahead of the vote, as they may see the competition heat up once the company goes private.

2. The ridiculous disconnect between the market cap and the value of Destiny’s assets prompts a takeover offer, which even at many multiples of today’s sp would be small change to a big pharma, who would then own all the assets, rather than simply a licence agreement.

3. Shareholders hold onto their shares through the transition and ride on the coat tails of the larger shareholders.

Of the three, PIs are obviously thinking that the third is the only viable option and are nervous about then being marginalised, but the current market conditions on AIM are not exactly attractive for PIs either. I also think that yesterday’s announcement itself makes the other two possibilities significantly more likely than they were, not least because it brings things to a head and creates a deadline to work towards.

I’m surprised by how little discussion there has been on here about the possible opportunities that might still present themselves here, as surely that’s key to any risk:reward decision?

Interesting comparison and yes, a lot of similarities. It could so easily happen here.

He did say that - it was a bit muffled, but that's exactly what he said. It was in response to the first question which was from someone in the room and the mic didn't pick it up very clearly as he was talking to the chap who asked the question (it was the only question from the room, all the rest were online).

I watched the presentation this evening and I think it still all looks pretty compelling. They're basically saying that they're trying to get the industry to change the way that it thinks about antibiotics.

The investment case is still hugely compelling on so many different counts - there was a killer slide in the deck today that compares XF-73 Nasal to Mupirocin and you can see why this could easily become the new standard of care - it's the real deal and beats the current SOC hands down on all fronts. But, Big Pharma need to change the way they think about anti-biotics and understand how to unlock the commercial opportunity.

The revised P3 design is significantly cheaper, and has more specific end-points targeting the specific commercial opportunities they want to go after first. If Big Pharma still aren't persuaded, I expect them to bring in private equity as a Strategic Investor to fund the trials - I'm sure there are plenty out there who would be attracted to the potential returns on their investment - and having an SI on board isn't the same as a placing, they can be tied in with lock-ins etc. to make sure they see it through to fruition.

“Our focus on end markets that are aligned with strong and enduring global technology megatrends means that we have a good pipeline of design opportunities for 2024."

Aside from the crazy disconnect from the fundamentals, the free float position here is going to add materially to how things play out at some point. Given that ROX are now entitled to convert (at a time of their choosing, or automatically when the fundraise completes) their CLNs into 28,500,000 new shares, they would then hold 25% of the shares in issue and Curren will reduce to 34%. Of the remaining 41%, quite a chunk will still be with the institutions who remain, albeit that some have reduced. So perhaps half of that number might be representative of the free float, maybe less? That means that, at todays’s SP, the entire free float is worth about £1m. That’s going to create a hell of a squeeze if a bid or some other bit of positive news lands. There won’t be anything like enough shares to meet the demand if that happens, so the SP correction could be spectacular, to say the least.

Agreed Smart Money - let’s see what unfolds. Interesting that it was released after hours too - more news coming?

Longfell, I haven’t decided yet. I already hold shares in three unlisted companies, so I am not unfamiliar with that situation. However, those are pre-listed (i.e. IPOs to come) rather than delisted, so are a bit different. I don’t have any basis on which to judge ROX and Curren by, other than what we have been told. It’s been presented as a fairly low key thing to date (i.e this is what we’re planning and we want an orderly transition) and Curren has seemed a fairly strait-forward chap to me in the video calls he’s done, so I’m hoping we may get the chance to ask him to address it directly before we have to decide. Well, of course, I’m actually hoping we don’t have to decide at all, because another party makes an offer they can’t refuse!

Thanks Smart Money - you’ve made some very considered posts here over the past couple of days.

The following caught my attention on ROX’s website “Our approach hinges on forming strong partnerships with visionary management teams and co-investors to create substantial value by anticipating disruptive trends in carefully selected fields. Through shared financial interests, we build robust alliances, valuing these relationships as pivotal to our success.”

SND obviously perfectly fits with their strategy, but I also thought the emphasis on partnerships and co-investors was interesting.

I’m still fully invested too and feel there’s a lot going to happen in the coming weeks. Not least the next contract announcement. We know there was at least one more significant US deal in the final stages of negotiation a month or two ago, so that could drop any day now. How is the market going to react when another deal that could be worth $20m to $100m lands?

There have been a couple of references on here recently to 10p being a floor for any kind of takeover offer, but I personally think that kind of number is the least likely outcome here.

We already know that ROX want the company to delist, so they have a plan to take the company private that would work very well for them thank you very much. It's not clear what the out-turn for any smaller investors who held onto their shares would be in that situation - they could find themselves squeezed out by ROX and Curren (who would then have close to 75% control) steamrollering through new share issues in a way that disadvantages smaller holders and dilutes them out of the picture. Or, it could simply be that smaller investors are effectively shackled to Rox and Curren until they decide to create an exit event (sale or re-listing), which could be done quite quickly if SND grows as we expect, or it could take 3-5 years or longer. Neither is a very attractive proposition for most small investors, as they either lose most of their money, or have absolutely no control over when they get their money back (although in the latter scenario, they could do very, very, well if there has not been the dilution that investors fear). What we don't know is what ROX and Curren intend, or how much their reputation with smaller investors matters to them (either personally, or commercially).

There is also a further option that has also been suggested - namely that Rox might consider an additional offer to buy out any remaining smaller investors who wish to sell ahead of the proposed delisting. Not sure how likely that is, but it would certainly provide for an 'orderly exit' and would presumably be pretty well received, given where we are today.

And then there's the other possibility - a new player comes in and makes an offer for the whole company. This is what I personally believe the changes to the ROX deal were designed to protect them against, but if it happens, I think we can be pretty certain that it wouldn't be at anywhere near 10p. Why would ROX accept anything like that kind of offer, when all they have to do to make shedloads more than that is take it private and watch the value grow exponentially? But that doesn't mean that they wouldn't be willing to consider an offer (they will likely sell within a few years anyway), it just means that any offer needs to be attractive enough to give them enough of a return to cash in (risk-free) and move on to the next deal. I have no idea what that would be, or which / how many parties might be interested in making a bid, but you'd have to imagine that it would need to be several multiples of 10p to make it more attractive than paying £8.5m for 50% of a business with market leading capabilities, contracted future revenues of $200m and a strong sales pipeline in a pivotal growth industry. That's what makes the current situation with SND so interesting.

Just to correct the reference to $200m potential revenues - that figure is not potential, it is CONTRACTED future revenues i.e. deals already signed. That’s why the value disconnect is so extraordinary - $200m in future revenues and the current market cap is £3m. Potential revenues are likely in the $Bns.

I don't think it's anywhere near over yet - I think there are going to be some further twists and turns here over the coming weeks, as the power shift takes place.

We know that Curren owns 44.88% of the company right now, with the rest (importantly more than 50%) held by relatively much smaller share holders (including PIs). With the CLNs issued to date, ROX are entitled to convert (at a time of their choosing, or automatically when the fundraise completes) their loans into 28,500,000 new shares, at which point they would hold 25%, Curren reduces to 34% and the remaining 42% is then held by other shareholders (with 'others' still being the biggest group) . When the fundraise completes, Rox will own 49%, Curren 23%, with the remaining holders dropping to 28%. And the numbers change a bit further if the additional £1.5m investment is made (post the fundraise, but there is no authority to do that yet).

So, if ROX convert immediately, Curren and ROX hold 59% between them, but importantly both are still smaller than the remaining shareholders collectively, so neither has a majority shareholding and either of them acting with the remaining shareholders could choose to accept an alternative offer (presumably that's the reason for ROX seeking the undertakings that Curren has made).

However, that does not mean that an alternative offer can't be made, it just means that all three parties (ROX, Curren and the 'rest') would have to be satisfied with any offer that was made, as all three (including the rest) have material control.

The key thing for me is that right now is the period when ROX's plan is most vulnerable - even if they convert all of the CLN's, they can't acquire more than 30% without the waiver and that's going to take time and approval from the Secretary of State. So that provides quite a big window of opportunity for anyone else who's interested to come up with an offer, or for ROX themselves to do so, as part of the 'orderly exit' proposals.

And, as I've said before, this is a business that has contracted future revenues of some $200m with a strong sales pipeline and at least one further material contract in the final stage of negotiation, so that number will rise. And today, the company is valued at less than £3m, so not much more than 1% of those future revenues. That's a huge value disconnect that other players in the market will be able to see very clearly. The question is what price would you put on it? Well ROX are happy to pay £8.5m to get half of it and they will want to see a very significant return on that investment. Even at £20m, that would still only be around 1x forward revenues, and a fraction of normal valuation in this market segment, but is still 6-7 times the current SP.

Lots still to play for here.

As of Thursday, there are now two ways that ROX can make some serious money out of this:

1. Proceed with the planed investment and delisting

2. Takeover offer from another party at a significant premium to what they have paid / are paying (10p per share).

I don’t think they would care one jot how they made the money, as long as they see a strong return on what they have invested. Hence the reason I think that this was a defensive play to make sure they win either way.