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

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.