The Australian Schultz Exchange

To be honest with you, I am not a big fan of over-regulation, I like things simple and I hate “Big Government”. But I also believe that something as important as our public markets need some boundary conditions. In my mind, the ASX has demonstrated in the past few weeks that it is not only clueless about what is going on in the health/biotech sector, but that it completely lacks the teeth to demand a level of compliance from the companies listed on the ASX.

Unsurprisingly, quality and integrity simply erodes as directors and officers/executives think they can get away with whatever corporate governance freewheeling they like.

In the past couple of weeks we have had “Schultz” responses in response to pricing queries for Invion (up 63%), Analytica (up 80%), Orthocell (up 15%), OBJ (up 19%) and now Prima (up 44%, down 32%). Perhaps one can sort of tolerate the Orthocell and OBJ shenanigans on the basis that their shareholder discussion forums are like the perverted cross between a circle-jerk and a 24-hour octogenarian knitting club. The tiniest little blip of positivity (click-click) causes ecstatic waves of company love (click-click-click) and a lot of general back-slapping about how awesome everyone is for life-long commitment to the company (click-click-click) and “being in for the long-haul” (click-DYOR-click), and as such little sporadic orgasms of share price are par for the course.

But Prima? Seriously?

Even the company’s response to the ASX is not accurate. On the 14th of May the company made the following statement:  

The Prima board intends to commence a Share Purchase Plan (“SPP”) for Prima’s shareholders, details of which will be provided when finalised. The SPP will seek to raise a maximum of $5 million.

No timing is indicated, with the implication (in my view) that it would not happen until after the EGM approval of Ridgeback. I mean, why would you do it in advance of shareholder approval of Ridgeback if the SPP offer price is going to be higher? It just doesn’t make any sense from an optics vantage. Indeed, this “impression” is reinforced by any lack of relevant detail in either s4.2 or s4.12 of the EGM documentation released on the 29th of June in relation to the SPP. To be clear, it is my opinion that the “average” reader of this document would reasonably assume that there is no agenda item in relation to the additional SPP plan (that was hurriedly announced on the 10th of July).

You’d think that an EGM would be a good time to start talking about it and provide some follow-on momentum with Ridgeback (and its low-ish price point) out of the way? A kind of CTRL-ALT-DELETE of shareholder perception, if you will. Frankly, In my opinion, it is pretty poor form to open up an SPP and then close just days before an EGM, where shareholders are being asked to approve a financing package significantly below the SPP.

But that’s just me.

Unfortunately, the 10th of July announcement has a fundamental defect in it, namely that it describes a minimum of $5m raise and a maximum of $10m raise (at the company’s discretion). This is not consistent with the 14th of May “maximum of $5m” disclosure (above). As such, the company has clearly decided that it wants to raise more money, and that’s fine, but then to tell the ASX that the SPP was anticipated through prior disclosure, is simply factually incorrect. Shareholders were previously informed of a maximum $5m SPP, but the 10th of July announcement is a maximum of $10m. Therefore the existence of the intent to offer a SPP was correctly informed, but the magnitude was not.

My opinion – and it is not really a stretch of the imagination and is fairly discernible from the facts – is that PRR management decided that with a rally on the back of their misleading announcement about EMA’s “endorsement” of IMP-321, that they could not only use the phenomenal market movement to time the announcement of the SPP (including the price, which had not been previously disclosed), but that they could stretch the ceiling of the raise because of anticipated shareholder enthusiasm for a stock trading at 8-odd cents (which likely means a deeper discount against reasonable near-term expectations for VWAP, and perhaps helps to make the Ridgeback deal feel less shitty if everyone else is getting discounts too).

Now, if that doesn’t warrant an investigation, then I don’t know what does. But what I do know, is that the ASX has gone soft. Of course, the other explanation for all of this is that Prima is just stupid. Unfortunately, stupidity isn’t a defense for share price manipulation.

One thought on “The Australian Schultz Exchange

  1. Pingback: Orthosmell | The Long Tail

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