Disclosure – my firm and I have a substantial investment in Realm Therapeutics. The following should not be viewed as financial advice or a recommendation.
Realm Therapeutics, is a broken bio-tech, currently trading at a substantial discount to our estimated cash backing of 16p per share. We believe this opportunity exists for two reasons:
- Extreme investor fear regarding future capital allocation, by a Board of Directors with zero skin in the game
- Uncertainty around UK investors and their ability/desire to hold an American listed security
My firm, BAVARIA Industries Group AG, recently acquired ~6% of the company at 7.5p per share. We have engaged with the Board of Directors to try and develop a constructive dialogue such that all shareholders can achieve a fair outcome from the ongoing strategic review.
We encourage any current or future shareholders to reach out to the Board of Directors and let them know what you want done with your cash. Otherwise, we worry that the substantial cash assets the management team has managed to protect, will be squandered on some other “bio-tech punt,” removing your right to make an informed decision regarding the allocation of your capital.
A copy of our letter is below. Please feel free to reach out to me directly if you are a current shareholder and have any questions.
February 22, 2019
The Board of Directors
Realm Therapeutics, Inc.
267 Great Valley Parkway
Malvern, PA 19355
BAVARIA Industries Group AG is a family owned, holding company that recently acquired 6,944,948 shares in Realm Therapeutics, making us one of the largest shareholders with ~6% of the shares outstanding.
The purpose of this letter is twofold. Firstly, we wanted to commend your recent efforts in achieving a very fair price for the remaining assets within the business. This represents a substantial recovery of value for your shareholders and we did not want your efforts to go unnoticed.
The second point we wanted to raise was regarding the path forward for current shareholders. Post the conclusion of the asset disposal to Urgo, U.S. Inc. we estimate the company will have in excess of US$25m in net cash (gross cash of US$28.4m less last reported liabilities of US$2.5m). At the current GBP/USD exchange rate of ~1.30 and using the last reported share count of 116,561,917 this equates to a per share, Net Asset Value of ~16p.
Currently, the price at which Real Therapeutics shares trade on the AIM market represents a substantial discount to this estimated “liquidation price,” with the shares last trading in the range of 7-8p. We believe this discount exists for two reasons:
- Uncertainty around future corporate actions and capital returns
- Uncertainty for UK based investors regarding the prospects of holding an unlisted or US listed security
We believe the most equitable solution for all shareholders is for the company to use its ample cash resources to pursue an immediate tender offer at 15p per share, prior to de-listing from the AIM market. We believe this to be the fairest solution as it allows shareholders to determine whether they wish to receive a fair price for their holding, or continue to hold on in the hopes of a further value creating event:
- Shareholders who elect to tender their stock will receive a fair recovery of their investment. A 15p tender price would represent ~94% of the estimated Net Asset Value, while also removing any uncertainty surrounding the holding of an unlisted or US listed security
- Shareholders who do not tender their stock will see and increase in per share, Net Asset Value, due to the repurchases occurring at a discount, while also being able to participate in a corporate action that seeks to extract value from the NASDAQ listing
We hope you take our proposal under consideration and remain at your disposal for further discussion.
BAVARIA Industries Group AG
Bavariaring 24, 80336 München