Maybe, possibly, could be……
This morning Elron Electronics announced
that a non-binding indication
of interest of a third party regarding a potential acquisition of Medingo Ltd,
an Elron subsidiary, has been received.
According to a company issued press release;
“The Indication relates to an
acquisition of Medingo’s entire share capital for a cash consideration ranging
from $150 million to $170 million and a contingent additional cash
consideration conditional upon
one or more milestone(s) to be mutually agreed, which may bring total
consideration up to between $185 million and $213 million. The
transaction would be subject mainly to (i) the parties entering into a
mutually agreed definitive agreement; (ii) satisfactory completion of a
full due diligence by the third party; and (iii) the parties obtaining
applicable corporate and regulatory approvals.”
(Note Diabetic Investor added the
Although Diabetic Investor does not yet
know who’s interested in buying Medingo, more on that in a moment, the announcement
of a NON-BINDING INDICATION OF INTEREST is somewhat strange. However, when it comes to the
insulin pump world strange occurrences are becoming commonplace.
Diabetic Investor finds it interesting
that this announcement comes on the same day when Insulet (NASDAQ:PODD) is
scheduled to release earnings. Could it be that Medingo is trying to steal some
of Insulet’s thunder?
As Diabetic Investor reported when
Roche announced their earnings, the deal between Roche and Insulet for
international distribution of the OmniPod is now dead. Diabetic Investor is
also aware that in previous investor presentations Medingo was showing a Roche
glucose monitor attached to their PDM which controls their Solo patch pump.
Could it be that Roche being desperate to protect their international pump
business has decided with the Insulet deal dead to purse Medingo? Diabetic
Investor considers this scenario unlikely given that Roche diabetes care unit has
just undergone a major management shakeup.
So just who is the “third party”?
The usual suspects would include
Johnson and Johnson (NYSE:JNJ), Abbott (NYSE:ABT), Bayer and Medtronic (NYSE:MDT). The question is why would any of these companies
seek to acquire a company that does not yet have one single paying customer, no
established relationships with managed care companies, no sales or support team
in place and has yet to scale manufacturing. As Diabetic Investor has said on
numerous occasions it’s no big deal to build a pump the rubber meets the road
in actually running an insulin pump company.
Considering that the insulin pump
market is already over-crowded and that the market for new patients is barely
growing it makes no sense at all for anyone to buy a company that has yet to
establish themselves in the market. Insulet may have some issues but at least
they have established themselves in the market.
Looking at the situation form another
perspective it’s possible that Elron realizes that without additional resources
there is no way for Medingo to effectively compete. Resources they don’t want
to provide so why not sell the company. And what better way to let potential
buyers know what they would sell for than to make public this NON BINDING “agreement”. The company knows that since this so-called
agreement is NON BINDING they have nothing to lose as they can always state that the two parities couldn’t
reach an actual agreement.
It’s also no accident this announcement
comes on the same day Insulet is set to announce earnings. As Diabetic Investor
has previously stated this has been a pretty good quarter for Insulet. Instead
of being able to boast about how well their doing the company is now forced to
be on the defensive as they will have to answer questions on why a company with
no market presence is able to be acquired. It’s reasonable to ask how it could
be that a company with an established presence in the market and more than
14,000 patients remains independent when everyone knows the company is trying
to sell themselves to the highest bidder.
To Diabetic Investor this situation is
not unlike a poker player who’s holding a bad hand trying to bluff at the pot. Anyone
who’s played poker knows that sometimes bets are made just to see what everyone
else at the table does. Elron knows they can always fold their hand and has
given themselves plenty of outs. Given
that it makes absolutely no sense for anyone to buy Medingo at this time this
is the only reasonable explanation for this move. However, it would be well to
remember that when it comes to the insulin pump market it’s best not to use
words like reasonable or logical.