Can you buy $1 for 80 cents? Stock markets rarely provide the opportunity to invest in an asset that’s worth than the net cash it carries on its books. Today, we came across a stock that trades for $0.80 for each $1 cash it holds on its books. Usually these opportunities are available when the market thinks the current management won’t take any actions that will enhance (or not destroy) shareholder returns. Last week Synta Pharmaceuticals Corp (NASDAQ:SNTA) and Madrigal announced their merger agreement. Madrigal will essentially take over the merged company, owning 64% of the outstanding shares of the entity.
Is this merger a good transaction for Synta Pharmaceuticals Corp shareholders? Billionaire Bruce Kovner thinks so. He filed an amended 13D last week disclosing additional purchases of 60K or so SNTA shares as well as his support for the merger. On the other hand, Synta’s President and CEO Dr. Paul Friedman decided to put his money on Madrigal as part of a $9 million cash infusion together with a consortium of investors. This tells me that Magrigal investors are getting the better part of this merger agreement.
Is it a good idea to follow Kovner into Synta? The merged entity which will be named Madrigal is currently valued at nearly $150 million. This seems a bit too high for a company that has only two drug candidates that are in early stages of clinical trials. There are other biotech stocks that have drug candidates at more advanced stages and trade at lower valuations.
In any case, you can find the details of Kovner’s recent filing below:
Ownership Summary Table
| Name | Sole Voting Power | Shared Voting Power | Sole Dispositive Power | Shared Dispositive Power | Aggregate Amount Owned Power | Percent of Class |
|---|---|---|---|---|---|---|
| Caxton Corporation | 0 | 12,057,869 | 0 | 12,057,869 | 12,057,869 | 8.7% |
| Kovner | 0 | 340,970 | 0 | 340,970 | 340,970 | 0.2% |
| Kovner | 0 | 4,000,000 | 0 | 4,000,000 | 4,000,000 | 2.9% |
| OB Select Opportunities | 0 | 600,548 | 0 | 600,548 | 600,548 | 0.4% |
| KFO HOLDINGS | 0 | 11,399,464 | 0 | 11,399,464 | 11,399,464 | 8.3% |
| Kovner, Bruce | 5,443,823 | 16,398,839 | 5,443,823 | 16,398,839 | 21,842,662 | 15.8% |
