Magenta Therapeutics (MGTA) ($39MM marketplace cap) is a member of my damaged biotech basket, I am bringing it ahead once more to focus on the chance for shareholders to vote down the proposed opposite merger with privately held Dianthus Therapeutics.  In MGTA’s S-4, the corporate strongly hints that if the deal isn’t licensed, a dissolution and liquidation is at the desk:

If the merger isn’t consummated, Magenta’s board of administrators might make a decision to pursue a dissolution and liquidation. In such an match, the amount of money to be had for distribution to its stockholders will rely closely at the timing of such liquidation in addition to the amount of money that can wish to be reserved for commitments and contingent liabilities.

There may also be no assurance that the merger shall be finished. If the merger isn’t finished, Magenta’s board of administrators might make a decision to pursue a dissolution and liquidation. In such an match, the amount of money to be had for distribution to its stockholders will rely closely at the timing of such resolution and, with the passage of time the amount of money to be had for distribution shall be lowered as Magenta continues to fund its operations. As well as, if Magenta’s board of administrators have been to approve and suggest, and its stockholders have been to approve, a dissolution and liquidation, Magenta could be required beneath Delaware company regulation to pay its exceptional tasks, in addition to to make cheap provision for contingent and unknown tasks, prior to creating any distributions in liquidation to its stockholders. Because of this requirement, a portion of its belongings might wish to be reserved pending the answer of such tasks and the timing of such a answer is unsure. As well as, Magenta could also be topic to litigation or different claims associated with a dissolution and liquidation. If a dissolution and liquidation have been pursued, Magenta’s board of administrators, in session with its advisors, would wish to evaluation those issues and make a decision about an affordable quantity to order. Accordingly, holders of its commonplace inventory may just lose all or a good portion in their funding within the match of liquidation, dissolution or polishing off.

Integrated within the S-4 could also be a control ready liquidation research (the distribution estimate right here assumes a Would possibly or June 2023 distribution, obviously that is not a practical timeline, further liquidation prices shall be incurred if MGTA does finally end up down that street):

In mild of the foregoing elements and the uncertainties inherent in estimated money balances, stockholders are cautioned to not position undue reliance, if any, at the Liquidation Research.

The beneath abstract of the Liquidation Research is topic to the statements above, and it represents Magenta control’s estimates of Magenta’s money that may be dispensed to stockholders as approved beneath acceptable regulation pursuant to a plan of dissolution.

Key assumptions underlying the Liquidation Research incorporated (i) that all the distribution of Magenta’s web money could be made in both Would possibly 2023 or June 2023, (ii) that Magenta would have roughly $65.2 million and $63.9 million of web money as of Would possibly 2023 and June 2023, respectively, after deducting prices and bills, together with criminal charges, the charges payable to Magenta’s strategic monetary marketing consultant, accounting charges, worker retention bonuses, severance and advantages, insurance coverage bills and different transaction-related prices, without a changes for taxes; (iii) that those prices and bills have been forecasted to overall roughly $11.8 million assuming the ultimate of a liquidation in each and every of Would possibly 2023 and June 2023; and (iv) roughly 60.7 million overall stocks exceptional as of April 27, 2023. The research ended in an estimated money distribution according to proportion in Would possibly 2023 and June 2023 of $1.07 according to proportion and $1.05 according to proportion, respectively.

These days, stocks industry for $0.64 according to proportion, smartly beneath control’s liquidation estimate.  There is a cheap presumption a liquidation would certainly observe a “no” vote to the merger, according to the merger settlement, MGTA could be required to pay a termination rate of $13.3MM (large compared to their money balances or marketplace cap) if MGTA enters into some other merger inside twelve months.

Termination Charges Payable by means of Magenta

Magenta should pay Dianthus a termination rate of $13.3 million if (i) the Merger Settlement is terminated by means of Magenta or Dianthus pursuant to clause (e) above or by means of Dianthus pursuant to clause (f) above, (ii) at any time after the date of the Merger Settlement and previous to the Magenta particular assembly, an Acquisition Proposal with admire to Magenta can have been publicly introduced, disclosed or in a different way communicated to the Magenta board of administrators (and won’t were withdrawn), and (iii) within the match the Merger Settlement is terminated pursuant to clause (e) above, inside twelve months after the date of such termination, Magenta enters right into a definitive settlement with admire to a next transaction or consummates a next transaction.

A liquidation could be their simplest life like choice, twelve months is a very long time to attend it out for a money burning biotech without a pipeline (they offered all their belongings in April).  With a view to shut the deal, MGTA wishes a majority of the votes solid to vote in want of the merger (edit: they want a majority of the stocks exceptional), the beef up settlement simplest has 6.9% of the stocks, leaving somewhat slightly of floor to hide.  Tang Capital Control owns just below 10% and probably is the Investor named within the background segment of the S-4 who proposed a money delicate be offering:

Between March 1, 2023 and March 28, 2023, a stockholder of Magenta (the “Investor”) made a number of unsolicited questions to Stephen Mahoney, the President, Leader Monetary and Running Place of job of Magenta, to inquire whether or not Magenta would be interested within the Investor proposing a money delicate be offering for Magenta at a cut price to its present money place. No explicit proposal, phrases or valuation have been mentioned right through this dialog, or any next dialog between the Investor and representatives of Magenta.

It’s not going that Tang would vote in want of the opposite merger at this level, given the present cut price to money.  I am guessing it’ll be difficult for control to get the 50% of the vote important, however as we have noticed in different microcaps, getting buyers to vote in any respect might be a topic.  A non-vote right here does not have an effect on the vote a method or some other, most probably benefitting control.

MGTA’s goal web money place on the time of ultimate (Q3) according to the merger settlement is $60MM, if we suppose that the vote fails and MGTA pursues a liquidation, let’s wager that they holdback $10MM for extra winddown bills or contingencies.

Above is my doable IRR math, I am assuming an preliminary distribution by means of yr finish after which a small one ($3MM of the $10MM holdback) in 3 years.  As well as, the corporate did promote their pre-merger belongings in April, $20MM in mixed milestone bills are in play too, however I am assuming the ones are nugatory.  The merger vote hasn’t been set but, however I’d be expecting it in early-mid Q3.  I purchased extra lately.

Disclosure: I personal stocks of MGTA