Without knowing the deal terms we are of course just speculating, but I’m guessing the offer won’t be anywhere near $0.55. Why? There are a few reasons.
The main one is that VLT is gonna need more cash IMO. They had $3.8m at 31 March and burnt ~$1.8m during that quarter. Don’t let the 4C fool you, they are capitalising a lot of their tech spend ($700k that Q) which makes the P+L look better. But that is a real cost of doing business.
Assuming some improvement in the cashflow profile, I expect VLT will report $2-2.5m of cash at June 30. They can’t stop investing for growth (or growth rates slip and investors get nervous and bail), so they would probably have to raise $ in the September quarter. As we all know, raising $ right now would typically involve a large discount.
Does Moylan the founder have $ to chip in and avoid dilution? Probably not. Instead of raising $ at a 20% discount Moylan could roll his stake into a bigger business at a premium (but not an 85% premium ie $0.55 per share) to the current share price. Regal one of the other major shareholders holds significant shareholdings in both businesses as well and is clearly supportive of the deal.
Is it opportunistic by DTC? Probably.
I’m on the wrong side of a takeover with Infigen (IFN) - so I know how you might feel (depending on what the deal terms ultimately look like). UAC and subsequently Iberdrola’s bids are both opportunistic and taking advantage of COVID depressed prices. The difference here (potentially), is if it’s equity based consideration you can get rewarded on the other side via share price appreciation in the merged company. In the case of IFN we are being offered cash only so have no opportunity to capture upside once the deal is done.
Hopefully this doesn’t come across as me trying to pick a fight. I’m not. This is all IMO and I could be way off the mark, I’m just speculating based on recent experiences.
