Ergomed (LON: ERGO) shares are up 27% today. ERGO shares are up on the back of an agreed takeover by Permira. That’s great and how lovely and all of that. However, there is one wrinkle here. Which is that Ergomed shareholders can elect to take the cash or it’s possible to take some cash and fold over the holding into the bidding vehicle. This is akin to those contingents that are so common in phara takeovers. As we discussed with reference to Acer Therapeutics: “The immediate price being paid for Acer is around the market capitalisation before the deal was announced. The premium - that 109% - is the value being ascribed to those contingent payments that will arrive if the drugs actually work. So, the value we could or should ascribe to ACER stock here depends upon what we think those contingents are worth. Something rather beyond most of our calculation abilities. It’s also worth noting that the contingents will not be traded anywhere, they’ll be entirely illiquid.”
Those contingents allow continued equity exposure to the future income stream that may or may not result from the company’s current activities. OK, so, maybe we’d like to stay invested in Ergomed? Or even take some cash and still remain partially invested? So, we’ve this contingent-like option: “As an alternative to the Cash Offer, eligible Ergomed Shareholders may elect for the Partial Securities Alternative (as defined in paragraph 15 of this announcement), pursuant to which they will receive 451 pence in cash plus unlisted securities,” - very, very, like contingents then.
Ergomed share price from Google Finance
Sadly though those contingents really aren’t going to be generally available. In fact, they’re a construction to allow the main person at Ergomed to continue to be equity involved without us really gaining that same right. The reason it’s constructed this way is so that there’s at least the appearance that we can so partake.
For: “The maximum number of Topco Units available to the Ergomed Shareholders under the Partial Securities Alternative will be limited to the equivalent of 20.0 per cent. of the Topco Offer Shares (as defined in paragraph 16 below) (the "Partial Securities Alternative Maximum").” and also “The availability of the Partial Securities Alternative is conditional upon valid elections being made for such number of Topco Units as represent at least 10.0 per cent. Of the Topco Offer Shares (as defined in paragraph 16 below), failing which it will lapse.” and then: “However, given the irrevocable undertaking received from the Founder includes an undertaking to elect to receive the Partial Securities Alternative in respect of 9,129,297 Ergomed Shares owned by him, representing his entire holding of Ergomed Shares and approximately 18.0 per cent. of Ergomed's existing issued ordinary share capital”
So, really, the contingents are just a way to enable the Founder to roll into the new equity without too many others being able to follow him.
The actual and real alternative here is to take the cash or take the cash. Choose wisely.