Wednesday, March 05, 2008

Breaking Up is REALLY Hard to Do

The seemingly ideal marriage of convenience and opportunity between Oracle Healthcare Acquisition Corp., a special purpose acquisition company, and diagnostics company Precision Therapeutics was called off just before ceremony.

And it's going to cost both parties a lot more than a deposit for the function hall.

Oracle announced this morning that the planned merger between the SPAC and the diagnostics company is over “due to currently prevailing market conditions.”

Seems to us SPACS were built to weather such market conditions. In fact, they’re supposed to thrive on it as they give private companies another alternative to get to the public market.

However, they’re not immune to the markets. A majority of the investors who buy into the SPAC through an initial public offering must approve of the merger. In deciding how to vote, investors must weigh whether or not they’d be better off cashing out now rather than letting their bets ride on a company like Precision Therapeutics.

In fact, according to Oracle’s annual filing, any shareholder that voted against the merger stood to receive roughly $8 for each of their shares if they were outvoted and the deal went through. To us, the question would appear to be simple. Were investors better off taking the $8 for their share or rolling the dice with shares in the new Precision Therapeutics shares?

Given the recent performance of IPOs, IN VIVO Blog is guessing the $8 was looking pretty good to Oracle investors.

The first sign of trouble came a few weeks ago when the two parties lowered the price of the deal. It appears that wasn’t enough to convince Oracle shareholders to approve the deal.

This is a fatal blow for Oracle. As we noted back in December,

Oracle Healthcare raised its capital through an IPO of its own on March 8, 2006. As per the structure of most SPACs, Oracle management had 18 months to find a company to acquire or else return the capital back to its investors.

On Sept. 8--the final day of the deadline--Oracle signed a letter of intent to acquire another company, according to Oracle's most recently quarterly filing. The signing of the letter gave Oracle management a six-month extension.

However, the filing goes on to state that the letter of intent regarding that purchase was terminated on Oct. 17, freeing up Oracle to find another deal before the pending March 8, 2008 deadline.
For those without calendars, March 8 is Saturday. The company’s officers must convene a meeting of shareholders to begin the process of dissolving the partnership and returning most of the $113 million raised in the IPO. According to SEC document it appears as if the figure might be closer to $100 million, minus the cost of expenses and other liabilities incurred over the past two years.

What's next for Precision? Hard to say. As pointed out by VentureBeat (where we first read of the news), the company had only $15 million on hand in September. According to the same S-1 filed in November, the company lost close to $10 million over the first nine months of the year. Precision pulled it IPO to pursue the Oracle merger, and now that avenue is closed as well. Its options are limited.

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