Current Price: $18.49
Offer Price: $19.75
Upside: 7%
Expected Closing: Q4 2020
On the 12th of August, Cellular Biomedicine Group signed a definitive agreement to be taken private by a consortium of management and all major shareholders. Consideration stands at $19.75/share (slightly raised from the non-binding in Nov’19). The consortium now holds 54.6% of CBMG and as the company is incorporated in Delaware, the majority of minority shareholder’s approval is required. The deal is not subject to financing.
It seems rather likely that this merger will close successfully as:
- According to our Analysis of US-listed Chinese Going Private Transactions, transactions with a definitive agreement signed almost always go through. Over the years so far, only 1 out of 19 was canceled. Spread currently stands at the average level (7%) for such cases.
- Novartis (major pharma company with $190bn market cap) is one of the major shareholders of CBMG (owns 7.5%) and has recently joined the consortium.
- CBMG doesn’t look like another fraud story – it has licensing agreements with Novartis and US National Cancer Institute for manufacturing and supplying their products in the Chinese market.
CBMG is a clinical-stage biopharma company. It develops treatments of cancer and stem cell therapies and currently holds 35 patents, while 48 are filed and still pending. Nonetheless, the pipeline is still in a very early stage (Preclinical and Phase 1). From 10K:
In addition to developing their own pipeline, they also manufacture and supply other drugs in the Chinese market.
Hi! Are there any details why the initial non-binding offer from 2019 didn’t result in a takeover?
Also what are the conditions for the deal to go ahead? A shareholder vote? Anything else?
The process is still ongoing, so is not like the non-binding offer from Nov’19 failed. It is common for US-listed Chinese companies to go silent for a certain period (sometimes quite extended) of time until a further update is announced. In this case, the silence took 10 months and the definitive agreement was signed in Aug’20 with a sweetened price.
The merger requires consent from the majority of minority shareholders as well as CFIUS approval (shouldn’t be an issue). Consortium holds 54.6% of outstanding shares. Meeting date is not set yet (preliminary proxy was filed recently). Current spread stands at 7.5%.
You say that CFIUS approval shouldn’t be an issue, what are your reasons for saying so? I thought the same, but after reading the background section of the preliminary proxy I get the idea that CFIUS approval was considered very important during negotiations. A lot of time was spent arguing specifically about the (size of the) reverse termination fee in case of no CFIUS approval.
Might be nothing, but I’m a bit wary.
My understanding is that CFIUS has to be involved because, at the moment, the company has a large % of Chinese ownership, but not majority. This transaction will cause the majority to be in the hands of Chinese owners. The low risk likely stems from the fact that nearly all operations are already in China, there is just a NYC headquarters with a handful of employees (IR, maybe some others), so it’s already in essence a Chinese company with a large % of Chinese ownership. Not a lawyer, but that’s my thinking.
The spread on this is almost 10% now.
Where did you see that closing would be in Q4? I didn’t see any language around timing.
Q:
When is the Merger expected to be completed?
A:
We currently expect to consummate the Merger during the first quarter of calendar year 2021. Since the Merger is subject to receipt of the Company Stockholder Approval, the CFIUS Clearance and other conditions, it is possible that factors outside the control of the Company or Parent could result in the Merger being consummated at a later time, or not at all. There may be a substantial amount of time between the special meeting and the consummation of the Merger. We expect to consummate the Merger promptly following the receipt of all required approvals and the satisfaction or waiver of the other conditions precedent as described in the Merger Agreement. See “The Merger Agreement—Conditions to the Merger” beginning on page 147 for additional information.
https://www.sec.gov/Archives/edgar/data/1378624/000119312520266721/d55648dprem14a.htm#toc55648_11
On October 28, 2020, the Committee on Foreign Investment in the United States (“CFIUS”) accepted the joint voluntary notice (the “CFIUS Notice”) filed in connection with the transactions contemplated by the Merger Agreement. The CFIUS Notice review period began on October 29, 2020 and is expected to conclude no later than December 14, 2020
Assuming a breakage price of ~$14, market seems to be pricing in a ~40% risk of failure. It’s a tough call what CFIUS will do, but I think the risk/reward is still good in the $17s. Are cancer/stem cell therapies a critical emerging technology? Manufacturing and trials are occurring in China, they are really just licensing IP from American universities, and the NIH, a government entity, which may bring greater scrutiny.
With merger closing Dec 14 (is that still accurate), why is there such a significant premium of $1.21 (6.13%) here? Any ideas? (Newbie here)
From the recent proxy (8 Dec): “We currently expect to consummate the Merger during the first quarter of calendar year 2021. Since the Merger is subject to receipt of the Company Stockholder Approval, the CFIUS Clearance and other conditions”.
The price remains unchanged, however, there is still some remaining uncertainty/risk regarding the outstanding CFIUS approval (check comments above).
https://www.sec.gov/Archives/edgar/data/1378624/000119312520312220/d55648dprer14a.htm#toc55648_3
Not closing until Q1
May see an 8K today? Haven’t seen anything yet but yesterday (Dec 14) was supposed to be the end of the CFIUS review period.
I am puzzled why there’s no news on this yet (as far as I can see).
There was a filing on Dec 29th: https://www.sec.gov/Archives/edgar/data/1378624/000119312520328697/d55648ddefm14a.htm
Shareholder vote will take place Feb 8. Regarding CFIUS, scroll here: https://www.sec.gov/Archives/edgar/data/1378624/000119312520328697/d55648ddefm14a.htm#toc55648_19
“The Joint Voluntary Notice was submitted by the parties on October 21, 2020 and was accepted by CFIUS on October 28, 2020. The 45-day initial review period commenced on October 29, 2020 and concluded on December 14, 2020. On December 14, 2020, CFIUS commenced an investigation of the Merger pursuant to Section 721(b)(2) of the DPA, which investigation will be completed no later than January 28, 2021.”
So I guess the “real” CFIUS review began Dec 14 and has a deadline of Jan 28.
CFIUS approval has been received and stock is up 9% pre-market. Minority shareholder approval is still required – meeting is set for the 8th of February.
https://www.sec.gov/ix?doc=/Archives/edgar/data/1378624/000119312521021200/d28184d8k.htm
As the remaining spread stands at <1%, we are closing the idea with 6% return in 5 months.
For my understanding: the spread is trading at 80bps with a couple of weeks to go and all the approvals secured. Why not go for a 10% annualized return?