Stock slide drama at Concordia Healthcare
These are not the best of times to be new owners of Concordia Healthcare Corp., a company that closed a US$520million equity offering this week and which plans to use the proceeds to help finance its latest acquisition.
And its recent stock-price slide — Concordia’s shares are down almost 50 per cent over the past month with the bulk of that occurring in the past week — hasn’t brought much cheer to long-term holders.
Indeed there have been musings that investors in the US$520-million raise — eight million shares at US$65 per share — may try to use the socalled material out clause to get them off their purchase. It’s not known how far those musings have travelled, but some bankers, who in turn have talked to investors, are aware of the discussions. “They are wondering what they can do and what can be done, because they are very upset at the price fall since the issue was announced,” noted one banker.
Actions involving material out clauses are rare and only undertaken when something substantial happens to the company or the industry at a time a financing is being undertaken. It follows that had that something — known as a material change which leads to a sharp drop in the price of the shares — been known at the time of the issue, investors would have balked at buying. Or if they did buy they would have paid a lower price.
A material out clause is different from the rights of rescission, which allows an investor in a new offering to back out if, after having read the final prospectus, he finds information different from what had been expected. But the surprise has to be significant and be either a material misinformation or a material omission. It’s extremely rare for an institution to back out of an order.
So what’s the recent drama at Concordia Healthcare, a company deemed to be a mini Valeant and which through an aggressive acquisition strategy has made a ton of money for its longterm holders.
The drama started a few days after Concordia announced the purchase of Amdipharm Mercury Limited for US$3.5 billion. That deal was announced on Sept. 8 and Concordia said it would issue 8 million shares. The day before the announcement it traded at $110.60 — a six month high. On the day of the announcement it closed at $98.82 and has tended to drift slightly lower over the past few weeks. On Sept. 21, Concordia filed a final prospectus and three days later set the price at US$65 per share.
After that the stock fell further and then sank in response to two developments: a tweet from Hillary Clinton on high and rising drug prices; and news that Democratic members of a Republican-dominated house committee were seeking documents from Valeant.
That combination caused Concordia’s share price to slide: on Tuesday it closed at $48.25 — or less than half of what it was at the start of the month. Three days earlier, the day the issue was priced, the shares closed at $88.80.
They are wondering what they can do ... because they are very upset