an article from biotechnology news, page-2

Here's another one, also from 30th June:

http://www.biotechdaily.com.au/media/backissues/2009%20June/BD%20Biotech%20Daily%20June%2030.pdf

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MARC SINATRA’S BIOGUIDE BRIEF NOTE: FERMISCAN, POLARTECHNICS

After the Progen saga earlier this year which highlighted how difficult mergers are to achieve, it is not surprising that proposed Polartechnics-Fermiscan union is now off.

While I said in an earlier Bioguide (BD: Apr 20, 2009) that the merger made sense, the marriage of two poor companies with their respective problems is not as easy as a rich
one taking out a poor one. Like Fermiscan shareholders, I was not aware at that time of the $1.4 million legal liability for the costs of the case against Prof Veronica James.

But the merger has largely been scuttled by an independent expert finding that Polartechnics offer for Fermiscan was neither fair nor reasonable to Fermiscan shareholders.

Interestingly, the independent expert found that, in their opinion, Polartechnics and Fermiscan shares could not be reliably valued.

They did look at the relative share prices of the two companies leading up to the merger announcement but, despite the fact that the comparison indicated the offer was fair, dismissed the comparison on the basis that “...investors in both Fermiscan and Polartechnics are unlikely to be fully aware of the potential returns and risks associated with each company”.

Take that, efficient market hypothesis.

At the end of the day, the independent expert decided the offer was not fair or reasonable based on their view that Polartechnics was likely to have to raise near term capital, diluting Fermiscan shareholders who took up the offer.

The funny thing is that Fermiscan isn’t exactly flush with cash either given they are burning about $1.7 million a quarter, have $3.8 million in the bank, no near term sources
of significant revenue growth and are engaged in costly legal proceedings against the inventor of the company’s technology, Prof Veronica James, that have already created a contingent liability likely to be around $1.4 million and climbing.

I suspect that it is the contingent liability that has really scotched the merger. The money that Fermiscan will have left if the appeal goes against them will barely be enough to keep themselves afloat without a very near-term capital raising, much less support Polartechnics’ cash-burn.

The merger probably would be going ahead if Fermiscan had just kept Dr James happy.

Polartechnics, on the other hand, probably only remains interested in the merger because it has few, if any, other options.

Fermiscan fell 0.7 cents or 6.7 percent to 9.8 cents.
Polartechnics climbed 0.3 cents or 4.62 percent to 6.8 cents with 2.2 million shares traded.

Marc Sinatra
Analyst

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Cheers.