Current Price – $1.2
Merger Consideration - $1.27
Upside – 6%
Expiration Date –TBD
This idea was shared by Thinley.
On April 3, 2018, RMG Networks agreed to be taken private by Mr. Gregory Sachs, RMG’s Executive Chairman. RMG stockholders will receive $1.27/share valuing the company at $16.8m. Sachs and associates currently hold 18% of the stock and have entered into a voting agreement to vote in favor of the merger. Transaction is subject to approval of majority of shareholders not affiliated with the Chairman (meeting not yet scheduled, but proxy has been released). Financing is already in place.
Transaction is expected to be completed in Q2, 2018, current spread stands at 6%.
Shares were trading at $1.4 when the acquisition at $1.27/share was announced. So chairman is taking the company below market prices, albeit these higher prices persisted only for couple of weeks.
"RMG Networks is a global provider of end-to-end enterprise digital signage solutions that allow its customers to deliver intelligent and real-time visual content to customers and employees. These solutions encompass installing and maintaining the hardware and the software which include the content and the content management systems that drive the content on the screens. "
The turnaround that these investors were expecting did not happen and shares lost c. 70%-80% relative to the write-up prices (after 4:1 reverse stock split).
In Q1 2018 revenues dropped by 17% and company burned through $1.5m in cash. If similar trend continues company will be out of cash by the end of current quarter. To avoid default, a bridge loan has been provided to the company by the current acquirers.
The largest investor in the company is Donald R. Wilson (DRW) who collectively holds 38.1% of the shares outstanding and has not officially entered into voting agreement. It is not clear whether he is supportive of the deal or no. But my guess is that Mr. Sachs would not try to take the company private if he did not have the unofficial ok from DRW. One of the possibilities is that voting agreement with DRW was skipped on purpose in order to keep him as unaffiliated shareholder allowing for easy transaction approval - DRW owns 46.5% of unaffiliated shares so only few additional shares would be needed for the voting to pass.
See further discussion on the topic on the CoB&F - the bottom line is that DRW vote is the key wildcard here.
If the deal is rejected by shareholders or cancelled due to some other issues, RMGN will probably need further financing to stay afloat - agreed bridge loans is a clear sign of liquidity issues. Thus downside might be material. That said, the unaffected price is higher than the acquisition offer.