CEGE & ABGX:
"Logically, we think the only way to correct the arbitrage is either, (1) for ABGX market participants to see that they can buy ABGX shares at a discount to market through CEGE and somehow estimate the imbedded discount - a difficult feat, or, more practically and efficiently, (2) for CEGE to restructure its ABGX ownership, e.g., spin out its ABGX shares into a separately traded tracking subsidiary so that (a) CEGE's true consensus technology valuation can be observed when CEGE is traded on its own and (b) the ABGX shares can be properly valued, i.e., at their market value, by eliminating the discount by gene therapy investors who evidently do not value ABGX's MAB technology at the same level as ABGX investors.
If this latter recommendation was executed we estimate that it would free up roughly $400M in market value that is currently precluded due to asset bundling with concomitant inter-market valuation discrepancy. More precisely, given relative gene therapy valuations and analyst reports pounding the table on CEGE to no avail, we estimate that CEGE shareholders actually value CEGE's business, net-of-ABGX, in the $650 range; given the current $28 share price ($925M market cap), the residual $275M of market cap is the therefore the value of CEGE's 2.426 million shares. This translates into a discounted price of $113 per share, roughly $160, or 60%, below ABGX's market price"(March 16 prices).
..."if CEGE sold the 2.426 million shares at say $270, it would convert the assets -- valued below $270 by CEGE investors -- into cash worth $655M. Then CEGE would have app. $905M cash, or $27.42 per share, and the CEGE technology could be valued efficiently on top of that, or they could distribute some of the cash if $900M was deemed excessive.
Nonetheless, because CEGE's management wants to keep the position - evidently contrary to what the CEGE shareholder consensus desires - spin out seems the most effective means to eliminate this inefficiency. If this is infeasible, then ABGX investors should nevertheless estimate the CEGE discount and exploit it."
geneticcapital.com |
