TOP IDEAS: Company CEO will realize the future upside from
going private offer for Ergoresearch Ltd. (TSXV: ERG) at the expense of public
We have always said that Investorfile takes pride in
discovering small cap value stock investment opportunities, which make up our
elite list of Top Ideas. But, that said, at times, full value for our stock
picks never gets realized for the minority investors of some of these public
Last month, Ergoresearch Ltd. (TSXV: ERG – $0.295),a
leading manufacturer of specialty orthotics, which has built up Quebec’s largest
network, comprising of 70 orthotic clinics best known as "Equilibre” announced
a going-private transaction. The Company’s CEO (a controlling shareholder in
Ergoresearch) in conjunction with a merchant bank proposes to buy out minority
shareholders for C$0.30 per share.
This offer implies an equity value for Ergoresearch Ltd. of
approximately $22 million, which is essentially at no premium to book value.
Last reported the Company had cash of about C$8 million (C$0.11 per share) and
What a "sweet” deal for the buyer!
Since the inception of the Investorfile blog, several of
our Top Ideas have been subject to opportunistic offers from insiders,
controlling shareholders at the expense of minority shareholders.
It started with Radiant Communications Corp., when a
controlling shareholder group attempted to steal the Company (with the help of
its own directors) from minority shareholders at $0.85 per share (See: Radiant
Communications shares are a steal: Too bad they are getting stolen). Fortunately
for minority shareholders (with the help of media pressure), the highway
robbery was thwarted and about six months later a 68% higher offer ($1.43 per
share) was consummated (See: Justice
served and big gain for minority shareholders of Radiant Communications.)
Not long after, our Top Idea Glavanic Applied Sciences Inc.
announced that the Company was going to be privatized at an offer of $1.70 per
share of which $0.65 per share was paid using minority shareholders’ own cash
(See: Offer to buy
Galvanic Applied Sciences pockets shareholders cash). This
transaction closed as is, returning only a small upside on Investorfile’s stock
pick four months after the date when we initiated first coverage.
Next was DDS Wireless. It was a privatization offer by the
Company’s CEO and controlling shareholder. The offer equated to total return of
about 50% on this investment from the date we first recommended it. In our
opinion the full value for this stock was not nearly reached.
This time it is a low-ball offer for Ergoresearch.The
shareholder meeting to vote on this privatization will be held on February 16,
2018. If approved, the return on this investment will be capped at 30%, less
than a one year since Investorfile first recommended this stock (See: Ergoresearch
is a small cap healthcare technology stock that is rich in value and cash).
We left numerous messages for the CEO of Ergoresearch, and
hence no reply. I guess he will use the cash and realize the upside.
The Company’s website: www.ergoresearch.com
Author ownership disclosure: Yes: TSXV: ERG
This article is for informational purposes
only. This article is based on the author's independent analysis and judgment
and does not guarantee the information's accuracy or completeness. The
information contained in this article is subject to change without notice, and
the author assumes no responsibility to update the information contained in
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Investorfile.com is not engaged in an
investor relations agreement with Ergoresearch Ltd. nor has it received any
compensation from Ergoresearch Ltd. for the preparation or distribution of this
The author of this article has acquired and
may trade shares of Ergoresearch Ltd. through open market transactions and for
investment purposes only.