I thought it would add value to HC readers to flesh out what Resapp may look like if the Pfizer transaction fails.
Prior to the Pfizer bid, Resapp traded for $0.09 per share. This is relevant because the pre-bid price generally becomes the new ceiling price when a transaction fails.
However, Resapp’s register is filled with arb funds that will immediately sell if the transaction does not proceed. So I’d expect the price to fall even further than $0.09. For the purposes of this exercise, let’s assume 12% of Resapp’s register is held by arb funds. On July 26th, 12% was held by nominees Citicorp, BNP Paribas, JP Morgan and HSBC (not including Fidelity).
Based on all of these shareholders rushing for the exit, I estimate that Resapp’s share price could fall to $0.05-0.07 in the event the transaction fails. It’s possible that it’s even worse (or better) than this, but this is my best guess.
Resapp would then find itself in the unfortunate situation of having to raise capital immediately at an incredibly inopportune time.
Resapp had $2.29m of cash on June 30 2022 and at the current run rate they’re burning about $3.4m a quarter. They’ll be out of money before September 2022 at this rate. So after the vote results are announced on the 19th of August they’ll have days ( I reiterate, days!) to raise money or else they’ll enter administration.
To get a capital raise away, new shares need to be offered at a discount. Tech and biotech businesses are heavily out of favour at the moment so it's a particularly unattractive time to raise capital. Larger discounts than normal are required at the moment. The poor results of Resapp’s data confirmation study doesn’t do them any favours either.
If we assume a 20% discount they’d raise at $0.04-0.056 per share. Resapp raised $5.8m at a 15% discount in April 2021, however, it’s a much more difficult time to be raising capital, so it's logical to expect a larger discount. I think 20% is a reasonable assumption but it's possible they’d need to offer an even bigger discount.
This means that if the transaction fails, shareholders could be sitting on a 51-65% loss from today’s price. The shares would need to rise by 265% to get back to the price offered by Pfizer.
I appreciate many shareholders have strong belief in Resapp’s technology. But the odds of Resapp being a good investment if this transaction fails are heavily against them. If you invest to make money, it makes sense to accept the deal.
Further, if you accept the deal and then use the $0.146 proceeds to buy a new investment, and let’s assume the new investment makes a 30% return, you’ll have 4.7x more money than if you hold Resapp and the deal fails and the share price heads to $0.04. Avoiding big losses is very important.
RAP Price at posting:
11.5¢ Sentiment: Buy Disclosure: Held
