In a contentious reorganization of Prometic Life Sciences, investors believe the 20 rights for every share they owned was a head fake to appease regulators into thinking the reorg didn’t really hurt the average investor. The rights offering was to suggest that the massively dilutive restructuring where retail ownership dropped from over 80% to less than 4% was fair for all concerned.
The officers and directors of Prometic Life Science (PLI) circumvented a shareholder vote via an Emergency Hardship application to the TMX in April. Shareholders aggressively challenged the application suggesting there were false claims and provided evidence they felt contradicted the application, yet the TMX approved the application. The TMX can act with impunity and have not provided any supporting evidence to justify their decision. The lack of transparency has left investors feeling duped not only by the officers and directors of the company, but by the TMX also. The case is now in the hands of the Quebec provincial securities regulator, the AMF.
Shareholders feel taken advantage of again by the rights offering. Only a maximum of 75 million dollars of rights will be allowed to be exercised. If all shareholders participate, but excluding the company responsible for the reorg (the Cayman Island entity belonging to the Thomson family have said they won’t participate in the rights offering) investors estimate they will only get between 6 and 8 percent of the rights that are being offered. Even greater dilution for all retail shareholders seems absolutely guaranteed once you scratch the surface of the deal.
The unique structure of the rights offering should be making the AMF even more curious to the legitimacy of why officers and directors wanted to remove shareholders rights to vote and force the reorganization. A fair rights offering would give shareholders absolute certainty of the number of rights they would be guaranteed to exercise, and the rights should have been liquid and able to trade in the market.
If the company was only intending to raise 75 million dollars, then every investor should have been prorated the number of rights that their shares would have entitled them. This would allow investors to possibly profit off of the sale of their rights if they could not afford or did not want to exercise them. This would not have harmed the company in any way, but the absolutely unique structure they created ensured more confusion, uncertainty and potentially less value for shareholders. A prudent person would want to know why. I’m sure the AMF is asking why.
The outstanding questions facing shareholders are; what will be the outcome of the AMF investigation and will the AMF make the findings of their investigation public? The AMF, like the TMX acts with absolute impunity. We all have to wonder when organizations are given god like powers of judge, jury and executioner and are not accountable to anyone, how do they stay pure to their mission? The AMF has a well-defined mission statement which includes the following statement;
“Protect consumers against unethical, abusive or fraudulent practices and give individuals and enterprises access to various dispute resolution mechanisms.”
To date, the AMF has stated “they have opened an investigation” but they have not offered any other feedback to investors. One would hope they would take decisive actions when thousands of private investors are at risk. The Thomson family is one of the wealthiest families in Canada, I’m sure delaying the reorganization they offered shareholders of PLI will do them no harm. Giving shareholders what we would hope would be their right to a thorough investigation to determine any wrongdoing would be the focus. I know as one of the shareholders I am sincerely hoping the AMF will do everything they can to ensure all facts are considered and made transparent in their decision.