Liquidation (actionable only today)
This is a quick note on a tiny, but free upside setup, where all invested capital will get returned within a few days. Actionable only today.
Merrimack Pharmaceuticals, a microcap shell company, ceased development efforts in 2019, underwent management changes, and is currently in liquidation following a milestone payment triggered by a previous drug Onivyde sale to Ipsen. Management has announced an initial tax-free distribution of $15.1/share, with the ex-dividend date of May 15. The dividend will be treated as return of capital. Post-distribution, the company will go dark. The stock also trades at $15.1 per share, meaning that investors will get all of their capital returned with the initial distribution (due sometime around May 17) and will have free optionality of receiving additional distributions from further milestone payments or a potential release of contingency reserves.
Further milestone payments: MACK’s management deems any additional milestone payments to be “unlikely”. However, there is a theoretically possible additional $225m ($15.5/share) in milestone payments from the 2017 Onivyde sale to Ipsen which will be triggered if Onivyde gets approved for “the treatment of small-cell lung cancer after failure of first-line chemotherapy” or “an additional indication”. It is not clear if Ipsen is still evaluating these options after Onivyde’s Phase III trial failed to meet its primary end point back in Aug’22. There are also potential milestones payments of $54.5m in total that may come from the 2019 sale of anti-HER3 antibody programs (MM-121 and MM-111) to Elevation. Details on the advancement of these treatments are sparse.
Contingency reserve release: The more likely upside scenario is the release of contingency reserves. These serve as a buffer to address any unforeseen or uncertain liabilities arising during liquidation. MACK management did not indicate how large the contingency reserves are, but these are likely to be a few million in size. Liquidation proxy combines contingency reserves together with accounts payable as one figure at $0.275m-$4m or 2-27 cents/share. Initially management expected the aggregate distributions to fall in the range of $14.68-$15.3 per share and also noted that this range does “not represent the minimum or maximum distribution amount”. Based on the initial $15.1/share dividend, there seems to be some scope left for further distributions.
Regardless if there are any further distributions, investors are paying only $0.01/share for this optionality.
The two largest shareholders/investment firms in Merrimack Pharmaceuticals are Western Standard and Newtyn Management. Together, these entities form a “13D Group,” which grants them combined voting power equivalent to nearly 30%. In 2019, Merrimack Pharmaceuticals entered into a cooperation agreement with the group, resulting in the allocation of two seats on the Board of Directors. These entities appear to be influential in the company’s decision-making processes and are operating in a shareholder-friendly manner. Their focus is on maximizing shareholder value through the monetization of existing assets and optimizing asset value per share by conserving the company’s cash reserves while maintaining minimal operations. I thinks this adds to the chances of additional distributions.
Why only today? its actionable till Friday.
You are correct. The company has previously indicated that “Merrimack expects to cease trading on NASDAQ on May 15, 2024” (see here https://www.bamsec.com/filing/119312524125367?cik=1274792), thus my note.
This was later updated to say “Merrimack’s Common Stock will trade on NASDAQ through May 17, 2024 and will delist from NASDAQ on May 20, 2024.”
Thanks, that is interesting. Since it is a large dividend the ex date is the business day after the dividend payment, so that would be Monday the 20th. It should indeed be actionable till Friday I think.
OCC memo:
https://infomemo.theocc.com/infomemos?number=54565
“The initial liquidating distribution of between approximately $14.68 to $15.30 per share has an expected
ex-date of May 15, 2024. It is also expected that MACK shares will stop trading on May 15, 2024”
It’s unclear to me if that means it is expected to not trade at all on May 15, or if May 15 is the final trading date. Usually, NASDAQ issues a corporate action alert prior to trading suspension, which I haven’t seen yet. The memo is from 5/8, so things may have changed since then.
Per the 8-K:
“The dividend is expected to be paid on or about May 17, 2024, to stockholders of record on May 10, 2024.”
Appears record date has already passed. Anyone able to confirm that the record date here is not relevant? Getting mixed opinions from various folks so thought I would check.
It is not relevant. Shareholders of record on May 10th need to keep their shares until at least ex date to be able to receive the dividend.
https://www.investor.gov/introduction-investing/investing-basics/glossary/ex-dividend-dates-when-are-you-entitled-stock-and#:~:text=If%20you%20sell,dividend%20is%20paid.
You also don’t need to be a shareholder of record on May 10th to receive the dividend. The only thing that matters is the ex-div date, which is somewhere around May 17th. If you’re buying the stock for $15.10+, it includes the dividend. If you’re buying the stock for $0.02, it doesn’t include the dividend.
Dividends/distributions over 25% (or 50) of stock price go ex-div on the day after payment, so yes record date is irrelevant in this case. Not sure why today is the only day to buy though? I would think Thursday is.
The company mentioned May 15th as an anticipated ex date, but I think they are wrong
https://www.bamsec.com/filing/119312524125367/1?cik=1274792&hl=5111:5154&hl_id=n1v8xk3fle
Thanks — that’s what I thought. Not sure why they even bother disclosing record date.
In case helpful for others’ reference, see FINRA Rule 11140 subpara (b)(2): https://www.finra.org/rules-guidance/rulebooks/finra-rules/11140
https://www.dividend.com/dividend-education/why-special-dividends-have-ex-dividend-date-after-pay-date/
They actually use a MACK dividend from 2017 as an example.
Any risk here?
Who is seeing a date other than May 10?
Post distribution, will the company be traded in OTC market? as in the case of LianBio (LIANY)
I can’t definitively answer this, but since management didn’t mention anything about trading on OTC markets, it’s more likely that the company will completely cease trading publicly.