Opinion:
I'm satisfied that the best and only sensible path ahead for investors in Advanced Photonix, (API), is to wholeheartedly support, the proposed merger with Luna Innovations (LUNA).
There should be significant cost savings which will be realized by combining the business operations. Richard Kurtz current CEO of API, and Jeff Anderson current CFO of API will not be associated with the merged company. Rob Risser, COO, and Steve Williamson, CTO, will head up and run the operations of the merged Advanced Photonix side of the new operation.
In addition, all of the API Board of Directors will exit the operational scene,(with the exception of Don Pastor) and heaven knows, this couldn't have happened soon enough! The new 7 person Board will have 3 API appointees, including Mr. Pastor, and 3 LUNA directors, along with the LUNA CEO, My Chung.
I have spent some time reading the Luna S-4 form filed with the SEC, and I would encourage investors to read it carefully: http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001193125-15-038753%2Etxt&FilePath=%5C2015%5C02%5C09%5C&CoName=LUNA+INNOVATIONS+INC&FormType=S-4&RcvdDate=2%2F9%2F2015&pdf=
Here are some aspects of the S-4, that I thought were significant:
(Thanks to IV poster bucktailjig05 for posting the following summary of projected future earnings for API):
API's Projected earnings from S-4
LUNA INNOVATIONS INC | ||||||||||
S-4 | ||||||||||
02/09/2015 | ||||||||||
Summary of Financial Projections Reviewed by the API Board and B. Riley | ||||||||||
$ in thousands | Estimated | Projected | ||||||||
CY14E | CY15E | CY16E | CY17E | |||||||
Revenue: | ||||||||||
Opto Solutions | 14,684 | 15,054 | 16,090 | 16,599 | ||||||
HSOR | 11,197 | 13,536 | 21,866 | 28,400 | ||||||
Terahertz | 2,351 | 4,073 | 4,425 | 7,201 | ||||||
Total Revenue | 28,232 | 32,663 | 42,381 | 52,200 | ||||||
Gross Profit: | ||||||||||
Opto Solutions | 5,085 | 5,097 | 5,563 | 5,854 | ||||||
HSOR | 3,203 | 3,832 | 8,127 | 9,963 | ||||||
Terahertz | 1,127 | 2,465 | 1,991 | 3,307 | ||||||
Gross Profit | $9,416 | $11,394 | $15,681 | $19,125 | ||||||
Operating Expenses | $11,592 | $11,272 | $12,308 | $14,162 | ||||||
EBIT | ($2,176) | $122 | $3,373 | $4,963 | ||||||
Net Income | ($2,480) | ($523) | $1,649 | $2,862 | ||||||
Adjusted EBITDA (1) | ($688) | $1,119 | $4,574 | $6,326 | ||||||
http://terahertztechnology.blogspot.com/2015/02/automation-and-control-technology-act.html
The following is a quick summary found in the S-4 by the API Board of Directors concerning why they believe the merger is a wise decision.
The API board of directors believes that the Merger presents a strategic opportunity to create value for API’s stockholders. In reaching its decision to approve the Merger Agreement and recommend the adoption of the Merger Agreement to its stockholders, the API board of directors consulted with management, as well as its legal advisors and financial advisors, and considered a number of factors, including, among others, the following
(1)
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the expectation based on estimates by API and Luna management prior
to the execution of the Merger Agreement that the Merger will result in
significant cost savings on an annualized basis;
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(2)
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the value of the consideration to be received by API stockholders as
a result of the transaction and the relationship between the current and
historical market values of API common stock and Luna common stock;
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(3)
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the fact that the exchange ratio represented a premium to the trading
price of API common stock at the time the Merger Agreement was signed that
was significant for a merger of equals transaction;
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(4)
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its conclusion that the businesses of API and Luna are a
complementary fit and that the Merger will provide expanded product
offerings, greater opportunities for innovation, synergy opportunities, scale
advantages and enhanced opportunities for growth, including in the test and
measurement markets; and
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(5)
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the potential to increase revenue through cross-selling to shared
strategic customer accounts; and
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76
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the API board’s knowledge of API’s business, financial and
competitive position, and of API’s operating plan for 2015 and its strategic
plans for subsequent years;
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•
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the API board’s understanding of Luna’s business, financial and
competitive position, and of Luna’s operating plan for 2015 and its strategic
plans for subsequent years;
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•
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the access to additional capital for product development that could
be derived from the proposed business combination by reason of Luna’s
comparatively strong balance sheet;
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•
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the governance provisions of the Merger Agreement, the credentials of
those persons designated as the initial members of the board of directors of
the combined business, and the dissatisfaction previously expressed by
stockholders with the composition of the API board of directors;
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•
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current financial market conditions and historical market prices,
volatility and trading information with respect to API’s common stock and
Luna’s common stock;
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•
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current industry, economic and market conditions and the various
alternatives to the Merger, including API continuing to operate as an
independent enterprise or completing a business combination with another
party and the benefits and risks associated with those alternatives;
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•
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the perceived similarity in corporate cultures, which would
facilitate integration and implementation of the Merger;
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•
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the ability and likelihood of API and Luna to complete the Merger,
including their ability to obtain necessary stockholder approvals and the
obligations to attempt to obtain those approvals, and measures taken by API
and Luna to provide reasonable assurance to each other that the Merger will
occur, including the provisions of the Merger Agreement that require API or
Luna to compensate the other in some circumstances if the Merger does not
occur;
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the fact that the Merger is not subject to any financing condition;
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the expectation that the transaction will be treated as a tax-free
reorganization to API and Luna and their respective stockholders for
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•
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the fact that the Luna common stock that API stockholders will
receive pursuant to the Merger will be registered and freely tradable
following the Merger;
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its review and discussions with API management concerning the due
diligence examination of Luna’s business, operations, financial condition and
prospects;
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in connection with the Merger, API’s financial advisor, B. Riley,
delivered a written fairness opinion to the API board of directors concerning
the fairness, from a financial point of view, of the Exchange Ratio being
used in connection with the Merger, to API stockholders. The full text of B.
Riley’s written opinion, dated January 29, 2015, is attached to this
joint proxy statement/prospectus as Annex C. API encourages you to read this
opinion carefully in its entirety for a description of the procedures followed,
assumptions made, matters considered and limitations on the review
undertaken. The opinion is addressed to API’s board of directors and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote or act on any matter relating to the Merger;
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•
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the terms and conditions of the Merger Agreement and the course of
negotiations of the Merger Agreement, including, among other things, the
ability of the API board, if there is a superior offer or other specified
intervening event, to withdraw or modify its recommendation to API
stockholders concerning the transactions contemplated by the Merger
Agreement; and
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•
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other terms of the Merger Agreement, including the mutual
representations, warranties and covenants, and the conditions to each party’s
obligations to complete the Merger.
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The API board of directors also weighed the
factors described above against certain factors and potential risks associated
with entering into the Merger Agreement, including, among others, the
following:
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the difficulty inherent in integrating the businesses, assets and
workforces of the two companies and the risk that the anticipated synergies
and other benefits expected from the Merger might not be fully realized;
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the risk that the cultures of the two companies may not be as
compatible as anticipated;
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the fact that the exchange ratio is fixed, indicating that API
stockholders could be adversely affected by a decrease in the trading price
of Luna common stock during the pendency of the Merger and the fact that the
Merger Agreement does not provide API with a price-based termination right or
other similar protection;
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the fact that the termination fee or reimbursement fee to be paid to
Luna under the circumstances specified in the Merger Agreement may discourage
other parties that might otherwise have an interest in a business combination
with, or an acquisition of, API (see the section entitled “The Merger
Agreement—Termination Fee ” beginning on page [ ] of this joint proxy statement/prospectus);
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the amount of time it could take to complete the Merger, including
the fact that completion of the Merger depends on factors that are outside
API’s control
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the fact that if the proposed Merger is not completed, API will have
expended significant human and financial resources on a failed transaction,
and may also be required to pay a termination fee or reimbursement fee in
various circumstances, as described under “ The Merger
Agreement—Termination Fee ” beginning on page [ ] ; and
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the risks associated with the Merger and the business of API and the
combined company in the section entitled “ Risk Factors—Risk Factors
Relating to the Merger ”
Please make up your own minds if you agree or disagree. My comments are not investment advice!, and you should do your own due diligence starting with a careful reading of the S-4.
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