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Yep, Thanks Boston! Quick with the facts! Clearly Sabby had sold all at one point last year and now have reestablished 118000 share holding.
glta
Good catch Atlanta!, I missed that. I see Boston745 too, had the impression they sold out last year, so I don't know exactly how they appeared to disappear from the institutional ownership listings I glance at.
Still, confirmation of a sizable holding at this point in time is what I'm most interested in.
glta
Hi Boston, I don't claim any insight into shorting strategies. If someone's got shares locked up somewhere, and we never know, its impossible to read whats at stake for them in shorting.
I'm more interested in the institutional ownership, and the shares locked into the two exisiting loans. Other insider ownership/compensation remains underground for now. A sizable percentage of smart money in amda however.
glta
Hi Atlanta,
I thought Sabby sold out last year, and that this represents buying back in. But I could be wrong there. Yes a net reduction from early last year when they were over 5% holders. Anyway just noting here that their sizable stake of 118000 shares has been confirmed as of Jan 8, 2018.
glta
Today's Sabby filing shows sizable share stake. 78750+39375=118125
Glta
excerpt from 1/8/2018 filing
"As calculated in accordance with Rule 13d-3 of the Securities Exchange
Act of 1934, as amended, (i) Sabby Healthcare Master Fund,
Ltd. and Sabby Volatility Master Fund, Ltd. beneficially own 39,375
and 39,375 shares of the Issuer's common stock (common shares),
respectively, representing approximately 1.30% and 1.30% of the Common
Stock, respectively, and (ii) Sabby Management, LLC and Hal Mintz each
beneficially own 78,750 shares of the common shares,
representing approximately 2.61% of the common shares. Sabby Management,
LLC and Hal Mintz do not directly own any common shares, but
each indirectly owns 78,750 common shares. Sabby Management,
LLC, a Delaware limited liability company, indirectly owns
78,750 common shares because it serves as the investment manager of
Sabby Healthcare Master Fund, Ltd. and Sabby Volatility Warrant Master
Fund, Ltd., Cayman Islands companies. Mr. Mintz indirectly owns
78,750 common shares in his capacity as manager of Sabby Management,
LLC."
The value of synergy. (a repeat post)
Very good read on valuation of synergy in the context of merger and acquisition.
http://people.stern.nyu.edu/adamodar/pdfiles/papers/synergy.pdf
"Synergy, the increase in value that is generated by combining two entities to create a
new and more valuable entity, is the magic ingredient that allows acquirers to pay billions
of dollars in premiums in acquisitions."
glta
I like this checklist from CL101:
"Current status:
Zimmer Japan Loan - check
Zimmer Spine HQ - check
Zimmer new CEO - check
Zimmer new Spine President - check
Hercules gone - check
Financial Statements Restated & Fully Audited - check
AMDA - loss EPS is so close to $0 - check
Clean Capital Structure - check
2018 Trump Tax Benefits - check
etc...
so ready! "
AshEvilDead;
Good post, Agree!
additionally, three points from earlier CL101 post:
"1. Two new note holders = add 2 layers of protections (on top of Sonny LLC) to fight against hostile takeover (only allow friendly, mutual M&A w/ Zimmer) = big gain for them as well.
2. They agreed to higher price per share ($3.87) conversion rate plus anti-dilution terms.
3. Willing to provide Letters of consent before M&A announcement. "
glta
CL101,
Imo, that paragraph is just defining the meaning of takeover events. the reference to conversions is part of establishing relevant thresholds that would indicate or clarify if a takeover has or will occur by an external party. I suspect this is more or less boiler plate language, that also addresses changes in board, etc. I don't see any specifics there or info related to conversions that are specific to this deal. Would like to hear from a pro who reads this stuff all the time.
glta
Boston, Thank you!
Boston745,
April 18 2016 was a one day spike from $.21 share price to $.31 and volume jump from 25K the day before to 925k. Can you or someone unpack what took place there? The connection to riverside? Thanks.
glta
Farmer6,
Thanks for posting this article. glta
Hondobud,
Take another look at CL101 post. That 500m was projection of future revenue of combined tech plus synergy amda brings to new company, not buyout price. Cl's model presumably demonstrated that if 500m revenue was being projected five years down the road the buyout price justify 3 shares zimmer to 1 amda or $375/share. (1.8b). My read of it.
"IT MEANS IF ZBH PAYS $1800 MILS TO ACQUIRE AMDA NOW, THEY WILL EXPECT TO SEE $540 MILS REVENUE PER YEAR PULL IN FROM AMDA'S PRODUCTS / TECHS + SYNERGIES (combined resources of both companies) for the year 2022 "
glta
Thanks CL101!
Happy New Year to you. Im with OMID. Took a few reads to get a sense of your modeling but very helpful to peg it to concrete examples. Thanks for the effort and sustained posting.
glta
Hi OhManIDied,
Yes, very useful to find such a clear text addressing these issues. Hopefully everyone manages their risk and exposure carefully and appropriately to their circumstances -- uncertainty, and unknown factors are always lurking. That said, here's hoping for a productive 2018!
glta
Valuing a Net Operating Loss Carry forward
Excerpt p.25, The Value of Synergy, Aswath Damodaran, 2005
"Assume that a firm with expected operating income of $ 1 billion next year
acquires a firm with a net operating loss carry forward of $ 1 billion. The computation of
the synergy from this acquisition is the savings in taxes that accrue to the acquiring firm
For instance, with a marginal tax rate of 40%, the savings in taxes this year (assuming
that the tax authorities will allow offsetting the target firm’s operating loss against the
acquiring firm’s gain) is $ 400 million. This is the value of the tax savings synergy, if we
assume that the target firm could never have used the net operating loss."
glta
Valuing Cash Slack in a Merger, excerpt from The value of Synergy p. 24
"The value of cash slack in a merger is easy to compute. In its simplest variant, we
would compute the net present values of the projects that the cash-poor firm would be
forced to reject because of its cash constraint and add it on to the value of the combined
firm. As a simple example, assume that firm A is cash rich and project poor and has a
cash balance of $ 10 billion. Assume that firm B is cash poor and project rich and would
have rejected projects with a collective net present value of $ 1 billion because of its
cash constraints. The value of cash slack in this merger is $ 1 billion and can be
considered synergy. "
glta
Synergy and LDR Merger.
Excerpted from p. 48-9 ZBH 2016 10-K Annual Report.
"On July 13, 2016, we completed our merger with LDR. We paid cash of $1,138.0 million. The total amount of merger consideration utilized for the acquisition method of accounting, as reduced by the merger consideration paid to holders of unvested LDR stock options and LDR stock-based awards of $24.1 million, was $1,113.9 million. The addition of LDR provides us with an immediate position in the growing cervical disc replacement (“CDR”) market. The combination positions us to accelerate the growth of our Spine business through the incremental revenues associated with entry into the CDR market and cross-portfolio selling opportunities to both Zimmer Biomet and LDR customer bases. The goodwill is generated from the operational synergies and cross-selling opportunities we expect to achieve from our combined operations. None of the goodwill is expected to be deductible for tax purposes."
FWIW, goodwill in Zimmer Biomet acquisition of LDR deal was valued at 482.4 m
(in comparison, goodwill in Zimmer acquisition of Biomet was valued at 7433.2m)
http://investor.zimmerbiomet.com/financial-information/annual-reports
glta
Boston,
Good point about the patent time frame. This isn't technology that is reinvented every other year.
glta
Synergies, excerpt p.6
Several interesting points here. Hopefully the "second school of thought" rules the day.
"I. Valuing Operating Synergies
There is a potential for operating synergy, in one form or the other, in many
takeovers. Some disagreement exists, however, over whether synergy can be valued and,
if so, what that value should be. One school of thought argues that synergy is too
nebulous to be valued and that any systematic attempt to do so requires so many
assumptions that it is pointless. If this is true, a firm should not be willing to pay large
premiums for synergy if it cannot attach a value to it. The other school of thought is that
we have to make our best estimate of how much value synergy will create in any
acquisition before we decide how much to pay for it, even though it requires assumptions
about an uncertain future. We come down firmly on the side of the second school.
While valuing synergy requires us to make assumptions about future cash flows
and growth, the lack of precision in the process does not mean we cannot obtain an
unbiased estimate of value. Thus we maintain that synergy can be valued by answering
two fundamental questions.
(1) What form is the synergy expected to take? Will it reduce costs as a percentage of
sales and increase profit margins (e.g., when there are economies of scale)? Will it
increase future growth (e.g., when there is increased market power) or the length of
the growth period? Synergy, to have an effect on value, has to influence one of the
four inputs into the valuation process – higher cash flows from existing assets (cost
savings and economies of scale), higher expected growth rates (market power, higher
growth potential), a longer growth period (from increased competitive advantages), or
a lower cost of capital (higher debt capacity).
(2) When will the synergy start affecting cash flows? –– Synergies seldom show up
instantaneously, but they are more likely to show up over time. Since the value of
synergy is the present value of the cash flows created by it, the longer it takes for it to
show up, the lesser its value."
The value of synergy.
Very good read on valuation of synergy in the context of merger and acquisition.
http://people.stern.nyu.edu/adamodar/pdfiles/papers/synergy.pdf
"Synergy, the increase in value that is generated by combining two entities to create a
new and more valuable entity, is the magic ingredient that allows acquirers to pay billions
of dollars in premiums in acquisitions."
glta
“Air Amedica cleared for landing.” The multitalented captain Bal at the controls; pilot, co-pilot, navigator, and cabin attendant all rolled into one. Currently flying below radar, foggy conditions, with little remaining fuel (cash). Former crewmembers safely parachuted out..CFO, IR, etc. (their seats ripped-out and jettisoned for good measure). A stealthy nighttime landing?? What's that? a quiet flurry of activity at the massive ZB hangar? The giant doors are cracked open revealing light, and movement, within. Will tiny Air Amedica soon taxi up, out of the darkness, for a major overhaul and refueling? “Just one last bundle of debt to wedge through the cabin door before landing….”
Happy New Year All
Here's to an interesting new year!
Many thanks to you Boston745 and CL101 for your remarkable research and insights!
"Its just paperwork and a filling fee essentially" yes, it is also a 30 day waiting period and can possibly lead to fed scrutiny, delays and consent decrees as posted earlier. Anyway Boston, I really don't know. I just see Amedica possibly zeroing in on this threshold and perhaps allowing for a reduced window of opportunity for competing bids. Bread crumbs and guesswork.
Best to you,
glta
Boston,
unless something dramatic happens, well, tomorrow, any cash from warrants will not show in year end 2017 10-K. That 10-k is the key document in determining size of persons test. This is how FTC derives its sales, and total assets determination. It uses the companies own sec filed documents--most recent 10-K.
to your other comment, I have no evidence as to why they might be moving to avoid HSR filing. Just that it appears to be lining up. My general perception is that opportunity to avoid fed oversight AND side step a 30 day waiting period could be value enough. I don't expect to ever know more than this, but thats why Im posting this, maybe someone else knows..
Also I'd be plenty happy if Q4 total assets stay above 20m and a higher than 325m offer for amda hits the table. Then HSR filing would process as usual, and my recent posts would be moot.
glta
Boston,
You are right. They are down from 26m at end of year 2016 to 20.6m now (end of Q3 2017), and yes it would take some serious write down of (probably) inventory in q4. But look at this:
Dec 31 2016 inventories, net = 7,213
Then, in March 31, 2017 10-Q inventories, net dropped to 1,425 . Interestingly in same 10-Q, for the first time, a second, non-current asset entry of inventories, net was created =5,548
inventories, net was therefore split into a current asset entry and non- current asset entry.
By Q3 Sep 30th report, the 2nd, non-current asset version of inventories, net was reduced to 3,933.
This is what I meant by saying amda appears to be "closing in on the 16.2 HSR threshold". Write off the remaining 3,933 in non current inventories, net in Q4 2017, pay off the loan and you are under the threshold.
Maybe this is coincidence? I don't have professional vision into why these accounting moves occurred.
glta
Boston, size of both companies matter. Zimmer is far above the threshold, but if amda total assets, and sales, as reported on end of year 10-K, fall below 16.2m, the test is not satisfied. imho after careful read.
Best,
regarding HSR filing:
https://www.ftc.gov/enforcement/premerger-notification-program/hsr-resources/steps-determining-whether-hsr-filing
excerpt:
C. The Size of Person Test
1. The basic test
The next step in the analysis is to determine the size of the persons you have defined as the
ultimate parent entities of the parties. The basic “size of person test” established by Section
7A(a)(2) of the Act requires a filing in transactions valued in excess of $50 million (as adjusted)
but at $200 million (as adjusted) or less only where at least one of the persons involved in the
transaction has $100 million (as adjusted) or more in annual net sales or total assets, and the
other has $10 million (as adjusted) or more. If these size thresholds are not met, the transaction
need not be reported.
(Again, adjustments to 2017 apply: 200m becomes 325m, 10m becomes 16.2m etc.)
--------------------------------------
dp60:
(1) the Commerce Test,
(2) the Size of Transaction Test, and
(3) the Size of Person Test.
HSR filing is required if all three tests are met. If total assets of amda fall below 16.2m at end of year 2017 then the size of person test will not be satisfied and HSR filing is not required. interesting no?
glta
Boston, all, i think there is still an issue here..
https://www.ftc.gov/enforcement/premerger-notification-program/hsr-resources/steps-determining-whether-hsr-filing
Steps for Determining Whether an HSR Filing is Required
Unless an exemption applies, premerger notification is required if your transaction meets three tests:
(dp60 note: I read this as meaning all three tests. If end of year books for amda fall below threshold figures of sales and assets, then amda, the smaller party to the transaction will not meet the size of person test and therefore no need to file--again if total buyout/merger falls below 325m (as adjusted to 2017 numbers. imo)
(1) the Commerce Test,
(2) the Size of Transaction Test, and
(3) the Size of Person Test.
The Commerce Test: If either party is engaged in commerce or in any activity affecting commerce, this test is met.
(dp60: remember all following numbers are subject to 2017 adjustments ie 200m becomes 325m in 2017--10m becomes 16.2m in 2017, etc)
The Size of Transaction Test: The transaction must be valued at more than $50 Million (as adjusted).1 To determine the value of your transaction, go to Section V.A of Introductory Guide II, “To File or Not to File.”
If the transaction is valued at $50 million (as adjusted) or less, no filing is required.
If the transaction is valued at more than $200 million (as adjusted), and no exemption applies, an HSR filing must be made and parties must wait until the statutory waiting period has expired before closing the deal.
If the transaction is valued in excess of $50 million (as adjusted) but is $200 million (as adjusted) or less, only those transactions that also meet the size of person test require a filing.
The Size of Person Test: The parties to the transaction must meet certain size requirements if the transaction is valued in excess of $50 million (as adjusted) but is $200 million (as adjusted) or less. To determine the size of person, go to Sections V.B and V.C of Introductory Guide II, “To File or Not to File.”
If the transaction is valued in excess of $50 million (as adjusted) but is $200 million (as adjusted) or less, the size of person test is met, and no exemption applies, an HSR filing must be made and the parties must wait until the statutory waiting period has expired before closing the deal.
Exemptions: Even if your transaction meets the size of transaction test and, when necessary, the size of person test, an exemption may apply. To determine if an exemption applies, go to Section VI of Introductory Guide II, “To File or Not to File.”
Endnotes:
1. This number, as well as others involved in the size of person determination, is adjusted annually based on the change in the level of gross national product. The numbers here reflect the original thresholds for reference; for current thresholds, click here.
glta
Boston,
FTC reviews acquisitions that are required to file according to HSR rules. Read specific filing requirements regarding "size of Person". This potential merger appears to be nearing the not having to file threshold. imo
Best
"I know its hard to fathom but Amedica should be a billion dollar company with those partners and for what its material can do. " (boston)
Boston, I agree! I hope we have a shot at getting there! Still, looking at HSR filing requirement factors because they bother me..
Best to you,
glta
Done posting for now.
Boston, Yes I do. I'm looking at whats happening on the books and finding it appears we are within striking distance, this quarter, of coming in below "size of person" threshold and thereby not having to complete the HSR filing . Is Zimmer capable of offering a low ball to stay below 325m final merger cap too? Imo yes, but still, who knows? Any other bidding for amda shoots valuations much higher. Not filing HSR appears to avoid 30 waiting period and keeps feds out of the picture. How valuable is it to Zimmer to not be told how to run their business ( risk of extended reviews, forced divestitures, etc) by federal agency?
What does Zimmer have to lose by aiming low and rapid closure?
imho,
glta
Boston, size of deal limit ceiling would be 325m based on my reading of these thresholds. I agree, however, cheap for what this company offers the industry. I would be very happy to see amda valuations blow far beyond this number. But still curious situation as you know. Particularly if year end accounting brings in total assets at less then 16.2m.
Best, glta
A closer look at Hart-Scott-Rodino (HSR) Review Process.
This might provide clues to amda future events as well as possible alignment of timing and accounting. I’m interested in other people’s read of HSR factors. All in my humble opinion of course.
Proposed Mergers, Acquisitions and Joint Ventures are reviewed by Department of Justice Justice (DOJ) & Federal Trade Commission (FTC).
Of specific interest are the “thresholds” that require a HSR filing. More specifically “size of persons Thresholds.” It appears that If AMDA is “small” enough, HSR may not have to be filed. Hence the 2017 shrinking assets quarter over quarter, constrained sales, adjustments to inventory tracking etc. These appear to align with zeroing in on HSR “threshold.” A lot depends on 4Q 2017 and 10-K. Perhaps a key to timing, since the year end accounting is essential for establishing “threshold” (Sales and total Assets from 10-k) Also might explain some of the accounting complexities of past few years.
Following document and p. 9-12 particularly useful :
https://www.ftc.gov/sites/default/files/attachments/premerger-introductory-guides/guide2.pdf
Threshold figures are adjusted upward each year. It appears that IF Amedica comes in at end of year 10K with less than 16.2m (as adjusted) Sales, AND less than 16.2m (as adjusted) total assets, AND the total merger deal comes in less than 325m (adjusted), then HSR filing may not be required.
This could limit/cancel exposure to required 30 day waiting period AND avoid government imposed conditions on merger that can force “divestiture” in particular business areas. For example see consent decree document below regarding Zimmer divestiture post biomes merger: (Boston made reference to this earlier)
https://www.ftc.gov/system/files/documents/cases/150624zimmeranalysis.pdf
Are there other possible advantages to not filing HSR?
Year end accounting has to be in place, limit to size of deal of 325m (as adjusted) has to be in place.
(but who knows, an announcement could come anytime). If warrants were activated that kicked money into amda this would have to come after year end books—only a few more days in 2017--in order to not increase total assets in 2017.
Searching “HSR” and “HSR thresholds” reveals lots of information. Also DOJ and FTC sites. A few links links:
https://www.ftc.gov/sites/default/files/attachments/premerger-introductory-guides/guide2.pdf
https://www.mayerbrown.com/public_docs/MergerReviewProcess.pdf
https://www.justice.gov/atr/horizontal-merger-guidelines-08192010
https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/mergers/premerger-notification-and-merger
https://www.ecfr.gov/cgi-bin/text-idx?SID=0985c3db2db851a507d4d3c484fa7019&mc=true&node=pt16.1.801&rgn=div5#se16.1.801_111
https://www.ftc.gov/news-events/blogs/competition-matters/2017/08/getting-sync-hsr-timing-considerations
also Note: "as adjusted" means these actual number are much higher in 2017. hence 10m becomes 16m etc.
https://www.ftc.gov/enforcement/premerger-notification-program/hsr-resources/steps-determining-whether-hsr-filing
Steps for Determining Whether an HSR Filing is Required
Unless an exemption applies, premerger notification is required if your transaction meets three tests:
(1) the Commerce Test,
(2) the Size of Transaction Test, and
(3) the Size of Person Test.
The Commerce Test: If either party is engaged in commerce or in any activity affecting commerce, this test is met.
The Size of Transaction Test: The transaction must be valued at more than $50 Million (as adjusted).1 To determine the value of your transaction, go to Section V.A of Introductory Guide II, “To File or Not to File.”
If the transaction is valued at $50 million (as adjusted) or less, no filing is required.
If the transaction is valued at more than $200 million (as adjusted), and no exemption applies, an HSR filing must be made and parties must wait until the statutory waiting period has expired before closing the deal.
If the transaction is valued in excess of $50 million (as adjusted) but is $200 million (as adjusted) or less, only those transactions that also meet the size of person test require a filing.
The Size of Person Test: The parties to the transaction must meet certain size requirements if the transaction is valued in excess of $50 million (as adjusted) but is $200 million (as adjusted) or less. To determine the size of person, go to Sections V.B and V.C of Introductory Guide II, “To File or Not to File.”
If the transaction is valued in excess of $50 million (as adjusted) but is $200 million (as adjusted) or less, the size of person test is met, and no exemption applies, an HSR filing must be made and the parties must wait until the statutory waiting period has expired before closing the deal.
Exemptions: Even if your transaction meets the size of transaction test and, when necessary, the size of person test, an exemption may apply. To determine if an exemption applies, go to Section VI of Introductory Guide II, “To File or Not to File.”
glta and happy new year,
Reuters shows a doubling of institutional ownership of amda over past three months. Currently stands at 10.95%. An accumulation of 182,000 "smart money" shares.
https://www.reuters.com/finance/stocks/financial-highlights/AMDA.OQ
glta
Thanks for posting JayDan,
This is great to see. The future reach of silicon nitride with its antibacterial qualities is vast. Reducing our reliance on antibiotics in all kinds of medical treatment is an essential step in healthcare. A biomaterial with all the positive properties of silicon nitride, along with remarkable antibacterial properties, is indeed a game changer.
glta
Hondobud,
Dont forget that the "intangibles" are not directly affected by diminishing current assets or a nosediving share price. The potential value of the technology, goodwill, brand and customer relationships is impressive as CL has pointed out repeatedly. Bal has consistantly made moves that only enhance the amedica brand, broad international application, and industry awareness of the special features of silicon nitride. He has been doing a very special kind of juggling act IMO. Amedica r+d has in many ways continued to move forward even though the accounting, staffing, proxy/rs, SEC filings etc, have been, lets just say, surprising...
glta
oh no, Hondobud, now you've done it...unleashing a christmas wishlist of future share price valuations for this little coiled-up spring of a company..
holiday greetings
Glta.
Hondobud,
Now, as we know, its Tanner Llc, engaged through end of year 2017...
Tanner btw lists M&A high among their various services, m&a expertise related to both accounting and taxes. Also strategic planning.
http://tannerco.com/services/
Who does the books in 2018 and beyond?
Glta,