The Case Against an ACT Hostile Takeover

[tradeup]

A hostile takeover is an unlikely scenario IMO. This topic gets brought up a lot so I'll share a few of my thoughts.

To an opportunistic Pharma, ACT's IP may look like a steal right now but it would also be very shortsighted to think their competitors would sit idly by and let them snatch up such a potentially large market opportunity. For this reason, a low-ball offer is actually a risk to the acquirer as it would almost surely trigger a bidding war and at the same time distance themselves from the support of ACT's management team. A buyout offer is a very publicized event and puts the entire Pharma industry on alert, it would also drive up the share price. Those that may have been content with waiting for Phase II or later data may jump in just to deter a competitor from stealing a piece of such a large unmet market on the cheap - especially when we're talking about AMD.

The potential acquirer would also likely recognize that ACT has a very engaged shareholder base and have to consider this. To try and go against management and win a majority would not be an easy task with this company.

So what kind of tender offer would management be willing to accept? That's tough to say but it wouldn't be cheap. Rabin's Lipitor statement may have come across as puffery to some, but it could also underscore their own value assessment. I get the sense they have a pretty good grasp on their potential. For many reasons, a successful offer may end up having to exceed several billion to win management and a majority of shareholders IMO - even at this early stage.

The problem is, we haven't proven anything yet. We've potentially "validated" our cells are safe, and shown engraftment in the SMD patient which was a huge plus for us, but its also been only a few months for an experimental therapy at only one site dealing with two patients - and although we witnessed some visual improvement many questions still linger -- it's just way too early to draw conclusions.

We can talk about the billions of dollars many a pharma have stockpiled for acquisitions, and their expiring patents and earnings at risk, but if anything this puts more pressure (from their own shareholders) to focus acquisitions on revenue producing companies with bolt-on technologies over Phase I/II "possibilities".

For mutually beneficial reasons, I see a major JV or JV's as a much more likely scenario, but not anytime soon. Until then ACT has some viable options now to continue funding the company.

To me, the sweet spot for us occurs after somewhere between 12-24 patients have been treated and observed. If I was Big Pharma, and I saw positive response from all or almost all of these patients, this would be enough for me to come to the table with a JV offer and a vision for commercialization -- this would be after many months of strategic talks with the company.

[stemdynasty]

I disagree. IMO buyout is very near if we don't partner soon. This is about capturing a multibillion dollar market for one application. Why pay the landlord rent if his building is currently valued at a pittance of what it's worth and it's cheaper to just buy him out and you become the landlord?

[billhouston]

Excellant read well thought out ty. Tradeup

[billhouston]

I disagree. IMO buyout is very near if we don't partner soon. This is about capturing a multibillion dollar market for one application. Why pay the landlord rent if his building is currently valued at a pittance of what it's worth and it's cheaper to just buy him out and you become the landlord?

Both good points and very worthy of more discussion

[Gizmo]

Tradeup,

A question- If another firm is thinking about a JV or acquisition of ACT, how do our authorized but unissued shares figure into the deal? I would presume that the additional shares that we voted to create on Jan. 24 would be viewed as part of ACT's assets, and not categorized as 'outstanding' shares.

[AZ geologist]

Tradeup,

A question- If another firm is thinking about a JV or acquisition of ACT, how do our authorized but unissued shares figure into the deal? I would presume that the additional shares that we voted to create on Jan. 24 would be viewed as part of ACT's assets, and not categorized as 'outstanding' shares.

I wondered before if management could "gift" themselves those authorized but non-issued shares to ward off a hostile take-over offer (even if they "gave them back" at a later time).

[HeyNow]

I wondered before if management could "gift" themselves those authorized but non-issued shares to ward off a hostile take-over offer (even if they "gave them back" at a later time).

LOL I can only imagine.

[davea0828]

I'm pretty sure the "authorized shares" do not come into play here.

They have to be issued and owned in order to be used as "voting" shares.

Dave

[tradeup]

Tradeup, A question- If another firm is thinking about a JV or acquisition of ACT, how do our authorized but unissued shares figure into the deal? I would presume that the additional shares that we voted to create on Jan. 24 would be viewed as part of ACT's assets, and not categorized as 'outstanding' shares.

ACT could use the reserve shares to ward off a hostile bid, but they would need to issue the shares first. Beefing up the A/S is a pretty well known way to ward off takeover attempts but I don't see that here.

[JHam]

A hostile takeover is an unlikely scenario IMO. This topic gets brought up a lot so I'll share a few of my thoughts.

To an opportunistic Pharma, ACT's IP may look like a steal right now but it would also be very shortsighted to think their competitors would sit idly by and let them snatch up such a potentially large market opportunity. For this reason, a low-ball offer is actually a risk to the acquirer as it would almost surely trigger a bidding war and at the same time distance themselves from the support of ACT's management team. A buyout offer is a very publicized event and puts the entire Pharma industry on alert, it would also drive up the share price. Those that may have been content with waiting for Phase II or later data may jump in just to deter a competitor from stealing a piece of such a large unmet market on the cheap - especially when we're talking about AMD.

The potential acquirer would also likely recognize that ACT has a very engaged shareholder base and have to consider this. To try and go against management and win a majority would not be an easy task with this company.

So what kind of tender offer would management be willing to accept? That's tough to say but it wouldn't be cheap. Rabin's Lipitor statement may have come across as puffery to some, but it could also underscore their own value assessment. I get the sense they have a pretty good grasp on their potential. For many reasons, a successful offer may end up having to exceed several billion to win management and a majority of shareholders IMO - even at this early stage.

The problem is, we haven't proven anything yet. We've potentially "validated" our cells are safe, and shown engraftment in the SMD patient which was a huge plus for us, but its also been only a few months for an experimental therapy at only one site dealing with two patients - and although we witnessed some visual improvement many questions still linger -- it's just way too early to draw conclusions.

We can talk about the billions of dollars many a pharma have stockpiled for acquisitions, and their expiring patents and earnings at risk, but if anything this puts more pressure (from their own shareholders) to focus acquisitions on revenue producing companies with bolt-on technologies over Phase I/II "possibilities".

For mutually beneficial reasons, I see a major JV or JV's as a much more likely scenario, but not anytime soon. Until then ACT has some viable options now to continue funding the company.

To me, the sweet spot for us occurs after somewhere between 12-24 patients have been treated and observed. If I was Big Pharma, and I saw positive response from all or almost all of these patients, this would be enough for me to come to the table with a JV offer and a vision for commercialization -- this would be after many months of strategic talks with the company.

Very good post! I agree with just about everything. For many of the reasons you have stated, I am also not concerned about a hostile takeover/buyout at the moment. I also feel that if it were to happen, it would have happened long before.

JV's will ultimately partner with ACT IMO, but I agree with you on this also, that we still have some time before that happens.

Thanks for a good post!

[pacman]

tradeup, good post, I think the shareholder base is quite solid, there are people out there who own a whole lot of shares perhaps controlling a larger % of ACT who would not let them go at a pittance. They are well educated in ACT's potential pipeline and know what ACT is worth, just as much as we have discussed many times on this forum. So, to my thinking, ACT is safe from any low-ball offer by the fact that others, with way more shares than we few, will have the say of whether they will sell or nay.

[Reignday]

A few thoughts...

The JV(s) is all but a done deal. Rabin said "there is no poison pill" but what else could he say. IMO J&J and ACT are currently dotting the i's and crossing the t's and biding time to win the favor of the current J&J shareholders. Every major pharma knows the intention of every other. IT IS THEIR BUSINESS! This is capitalism and by nature survival of the fittest. This is not a guessing game and foreknowledge is a requirement for success in this arena.

There will be no hostile takeover because Pfizer, Roche etc... KNOW, or at least have some vague knowledge of exactly what is taking place. To attempt a move as bold as a "take over" without this foreknowledge would make fools of any who tried.



From SUN TZU, the art of war

Thus what enables the wise sovereign and good general to strike and conquer, and to achieve things beyond the reach of ordinary men, is foreknowledge.

[davea0828]

A few thoughts...

The JV(s) is all but a done deal. Rabin said "there is no poison pill" but what else could he say. IMO J&J and ACT are currently dotting the i's and crossing the t's and biding time to win the favor of the current J&J shareholders. Every major pharma knows the intention of every other. IT IS THEIR BUSINESS! This is capitalism and by nature survival of the fittest. This is not a guessing game and foreknowledge is a requirement for success in this arena.

There will be no hostile takeover because Pfizer, Roche etc... KNOW, or at least have some vague knowledge of exactly what is taking place. To attempt a move as bold as a "take over" without this foreknowledge would make fools of any who tried.



From SUN TZU, the art of war

Thus what enables the wise sovereign and good general to strike and conquer, and to achieve things beyond the reach of ordinary men, is foreknowledge.

Reignday,

Why have you said J and J? Did I miss something? Is it so far along that all the other Pharma's have simply stepped aside?

Dave

[MB117]

Poison pill = Lanza

[Reignday]

Just a feeling. It is common knowledge that certain representatives of J&J have been seen seated at the same tables as certain representatives of ACT at some of our previous presentations.

[Stemster]

Tradeup,

This is a very well-thought out counterbalancing response. I appreciate your perspective on this topic. Well done.

[davea0828]

Just a feeling. It is common knowledge that certain representatives of J&J have been seen seated at the same tables as certain representatives of ACT at some of our previous presentations.

Reignday,

Well that would be a HOME RUN for sure. ACT would be on the map if that happened.

Dave

[Reignday]

Also in the highly competitive arena of capitalism exists strategy.

Dangerous and highly speculative but the chance of a take over may exist(however not likely):

From Pfizer point of view.
If I saw J&J in bed with ACT and I wanted ACT for my own.
Knowing that I have lost one of my best revenue sources, and my direct competition is about to pick up the IP of the decade for a song ... I might act.

I might offer a takeover bid that I thought I might lose but big enough to make my competition pay for this IP as I paid for Lipitor.

Somewhere between 16 and 20 Billion dollars.

If J&J wanted this IP they would have to pay for it. If they are not willing to pay for it then I get it for a song. It may take five years to get my pay off but it will be huge and therefore worth the risk.

I would hand over the AMD/SMD to my people and put Lanza directly to work on hemangioblast...


Oh ya Lanza...the poison pill....antidote
I would purchase SUE from the Field museum in Chicago and reconstruct her in a private mansion on a 1000 acre island anywhere with palm trees (not snow) and this would be one of Lanza's many sign on bonuses.

Just having some fun

[milachka]

For mutually beneficial reasons, I see a major JV or JV's as a much more likely scenario, but not anytime soon. Until then ACT has some viable options now to continue funding the company.

This is the phrase I have a problem with. Now that we approved a billion new shares ACT indeed has viable options to fund the company, but at what cost: issuing shares at 0.1? I would hate to see more dilution before they have jacked up the stock price significantly. So I am hoping for a JV before any further dilution.

[Regenofix]

"The problem is, we haven't proven anything yet. We've potentially "validated" our cells are safe, and shown engraftment in the SMD patient which was a huge plus for us, but its also been only a few months for an experimental therapy at only one site dealing with two patients - and although we witnessed some visual improvement many questions still linger -- it's just way too early to draw conclusions."

Excellent analysis and I agree with almost everything - except for the level of "doubt" about the things we have achieved, thus far. I think that, because it is nature, and biology, and that we have performed so many similar procedures and have learned so much more as we have proceded along, I think there is a certain amount of dependability and reliability that we can expect from our future endeavors - to a certain extent. I think that is more the reality than it is to think that we have had one fortunate result or have had a lucky consequence. I think that the road we are on is not going to deteriorate under our feet. We are not going to be a hyped-up "flash-in-the-pan". I'm surprised that so many knowledgeable onlookers don't feel the way I do. I don't know if they really don't - or are feigning a position for financial reasons.