I am a professional investor with over 15 yrs of investing experience. I have compounded my personal capital at over 40% for the last 10 years and simply invest full-time now. I am not hard to find on social media etc - these are all simply statements of fact to demonstrate my bona fides, I am not trying to win praise or anything like that. I am long RAP and have an incentive in seeing the deal close, but if it doesn't, the position is sized appropriately (for me) that the loss will be manageable.
Whilst the loss for me would be all in a day's work, I fear the consequences for many retail shareholders - who demonstrate an obvious lack of financial sophistication or investment experience - would be devastating. I am writing this post inasmuch to try to limit that kind of devastating outcome, for those who clearly do not see what's coming, as to earn an extra 15% return for myself.
At the end of the day, this is investing - about making returns, generating money - and assessing the risks and rewards in any given situation. There is far too much emotion involved in this name, ResApp, which in the cold light of day is just another small-cap company with a dream and very limited resources.
When assessing any merger or takeover transaction, the key question is, 'what is my BATNA?' (best alternative to a negotiated agreement). With regard to RAP, all I see on these threads are assumptions - plain assumptions - that the capital RAP obviously needs will somehow be readily available, on reasonable terms, even if the deal fails. There has been very little or almost no discussion of the following FACTS:
- before PFE made their bid, RAP stock was trading at 6-6.5c, in March, when overall market sentiment was clearly far superior to the current;
- since PFE made their bid, RAP's key near-term value-creation catalyst, the Data Confirmation Study, has failed, and failed badly;
- RAP disclosed a $2.3mm cash position as of the end of June, but still needed a $680k bridging loan from PFE to make it through the deal process (per latest announcement), suggesting a very low extant cash position today.
This all means, if the PFE bid fails, RAP would be a going concern risk and would likely need to raise material capital on terms NOT of its own choosing. It is quite likely that should the bid fail, RAP equity would rapidly trade down to below where it traded before the current bid, not only because of this obvious need, but because all the arbs involved in the stock - at least 50% of the ownership of the company today, by my math - would simply sell and move on. This means if you reject the PFE bid, you are underwriting an immediate and unavoidable ~75% capital loss from where we trade today and a 80% loss on the 20.8c takeover bid.
There is no doubt that - just like in any outright speculation - there is a world in which, after this 80% obliteration, they somehow raise capital, probably multiple times, over a number of years; prove out their technology; and return a final value well in excess of 20.8c. But that is largely irrelevant to the analysis today, since it is based entirely on hope, supposition, and chance - not on fundamental analysis of the risks and rewards. It is simply a bet, and a bad one at that, given the demonstrated execution of this management team and the trial results thus far. You would be better off mozeying on down to Crown or Star (in sydney) and putting your 20.8c of value (after accepting the deal) on red a few times in a row and making your deep excess return that way.
The other new consideration is the security PFE now has over RAP's core asset - the R&D IP data - as a result of this bridging loan. EVEN IF the PFE deal is voted down, there is EVERY CHANCE PFE ends up with the core value of the company - for a pittance! - given the parlous cash state of the company (absent this deal). as a pure outright bet, selling this company for an implied $175mm, as opposed to having all the value taken away from you for $680k, seems a no-brainer. it should be taken.
Obviously, every single buyer of the stock in the coming days is going to tender and vote yes, and PFE has made it clear this is their best and final offer. You should accept it. It gives me no joy to deliver what is likely disappointing news to many long-term holders who hoped and dreamed this investment could be so much more. But this is a generous offer given the realities of the environment, and BATNA, we face. It should not be squandered.
I mean this in no ill-will or bad faith. Best of luck to all holders. I will be voting yes (disclosure, own 5mm shares).
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