Not fair, is reasonable: Expert says Prana’s big investment isn’t great but it’s the only option

You *could* go left, but we're really encouraging you not to do that. Pic: Getty
An independent expert says Prana Biotech’s (ASX:PBT) life-line investment, one that would see up to 63 per cent end up with a US shareholder, is not fair but is reasonable.
In December, Boston-based Life Biosciences led a $45 million investment in the $17m company, after it moved into Parkinson’s disease.
Life Biosciences is spending an initial $13.4m investment of its own cash and a possible $31m via short-term warrants, a financial instrument similar to an option.
Depending on the US-Australian dollar exchange rate, all of the above would hand Life Biosciences 60-63 per cent of Prana.
Independent expert FTI Consulting says it’s not a fair deal for other shareholders, but it is reasonable.
It’s not fair because the prices at which Life is getting stock — 3.9c — and the warrants — 4.5c — will reduce the fair value of shares in Prana.
FTI’s pre-deal fair value range is 3.5 to 5.1c.
The post-deal fair value range is 2.6c to 3.5c.
The deal is reasonable however because the overall deal is better than no deal.
The pros are:
- Prana gets an immediate capital injection.
- It has a controlling shareholder whose interests align well with theirs.
- The cash will fund expensive R&D and the rest of the business for the medium-term.
- Life has a proven track record in raising more money for its investments.
- It provides exposure to the US market.
- And Life might one day offer to buy the rest of Prana with a juicy premium.
The cons are:
- Life might make an offer for Prana — but with no premium.
- Shareholders will have their current shareholdings diluted to 67 per cent, and further to 40.4 per cent if Life Biosciences exercises all the warrants.
- Life will have control over Prana’s strategic direction.
- Lower chance of a takeover by anyone else.
The alternative of no deal is no investment and Prana has to find $45m — the total amount that Life and friends have promised — somewhere else to develop their brand new drug line.
“Based on Prana’s projections, its current cash resources of approximately $8 million as at December 2018 could run out in mid-2019,” the independent expert report said.
Prana shareholders are set to vote on whether to OK the investment, a change of name to Alterity Therapeutics, and the election of two Life appointees to the board on April 5.
Prana shares were flat at 3.8c.
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