The information included in the
letter below (including any advice or other conclusions) are preliminary
advice and conclusions made by Avigen, are based on assumptions not set
forth in the attached letter and are subject to change. No Avigen
stockholder or any other party should rely on such information or take any
such information as a statement of fact or valuation or liquidation
analysis.
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RBC Capital
Markets Corporation
Two Embarcadero Center
Suite
1200
San Francisco, CA 94111
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Telephone: (415) 633-8500
Jeff Himawan, Ph.D.
Chairman of the
Board
MediciNova Inc.
4350 La Jolla Village Drive
Suite 950
San
Diego, CA 92122
Dear Jeff,
Thank you again for your proposal and your
continued interest in Avigen.
As you are aware, for a couple of months
Avigen has been diligently reviewing prospective merger candidates, including
MediciNova. The interest in a merger with Avigen has been significant and we
have received several written proposals. The Board of Directors of Avigen is now
at a point at which it would like to advance the most promising proposals.
To that end, we are asking all interested
bidders to provide their best proposal in writing this week so we can take the
proposals to the Avigen Board on or about Monday, March 16.
We currently anticipate that the Board
will select a subset of the proposals and authorize management to proceed with
diligence with only that limited group.
As Avigen is a small company it is simply
not feasible for Avigen to move forward with all interested parties at once. We
intend to review the proposal that you submit this week in conjunction with all
of the other proposals that we receive and "narrow the field" to the most
attractive proposals.
As I am sure you can appreciate, the Board
will not present to stockholders a transaction unless it is valued above the
liquidation value of the company. Currently, we do not believe that MediciNova's
offer is superior to our liquidation threshold. Please keep in mind that for
your proposal to be selected you not only will need to provide a proposal which
is superior to liquidation, but also one which is superior to the numerous other
proposals we have received and may receive in the future.
To assist parties with revising their
proposals, we are providing each one with some suggestions (based on a
comparison of all existing proposals as well as the Board's desire to maximize
shareholder value) on how their offer might be improved from the shareholders'
perspective.
Accordingly and per your request for
detailed feedback, please allow us to provide some specifics on your
proposal:
1. You have offered 1.75 million shares of
MNOV stock in exchange for $7 million in Avigen cash. Based on yesterday's
closing price of $1.78 per share, those shares are only worth $3.1 million. That
is a discount of $3.9 million, or over 50%. Furthermore the MNOV stock is quite
illiquid. This illiquidity suggests to us that shareholders would get far less
than the $3.1 million "face value" of the offered stock should they choose to
sell.
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RBC Capital
Markets Corporation
Two Embarcadero Center
Suite
1200
San Francisco, CA 94111
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Telephone: (415) 633-8500
2. The conversion feature in your offer is
at a significant premium to the current stock price. The $4.00 per share
conversion price currently represents a premium of over 100% and thus we view
the Avigen shareholders' probability of converting as very low. Given the short
time frame of the convertible security (one year from close) and the high
premium, the option value of the convertible security is only a few cents per
Avigen share based on traditional Black-Scholes valuation
methodology.
3. You place essentially no value on two
of Avigen's assets: AV411 and milestone payments that Avigen believes are likely
to come due from a 2005 transaction with Genzyme. Put differently, under your
proposal, because of the high conversion price of the convertible security,
MediciNova stockholders prior to the transaction capture much of the future
value from AV411 and Genzyme rather than existing Avigen
stockholders.
4. The cash underlying the convertible
security will still be at risk to a claim by creditors.
There are a number of changes that might
make the MediciNova proposal competitive with the other proposals we have
received and enhance its attractiveness to Avigen's shareholders. MediciNova
might consider offering:
1. a premium
for cash, rather than a significant discount
2. a significantly lower
conversion premium on the convertible security
3. more flexible conversion
terms that might favor Avigen stockholders
4. a longer term on the
convertible security to increase the option value
5. a significant value
placed on the AV411 program and Genzyme milestone
6. alternative liquidity
option to mitigate the illiquidity of the MNOV stock
7. other structures that
do not put the Avigen stockholders' cash at risk of a default or
bankruptcy
We hope you find our feedback and
suggestions helpful. We would be happy to have you as one of the parties with
whom we move forward but your proposal would need to address our comments in
order for us to do that. We truly hope that you will improve your offer and
resubmit it by
Friday, March 13
to maximize the competitiveness of your
proposal with Avigen's other alternatives. In the meantime, if you have any
questions, please feel free to call me.
Sincerely,
Andrew E. Singer
Managing
Director
Health Care Investment Banking
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