Second Sight (NASDAQ:EYES) agreed to issue new shares that would give 60% control to its competitor in France, Pixium Vision, on Jan. 6. Since then, EYES stock has risen. As a result, I suspect that management is now thinking about amending or canceling that deal.
As it stands, EYES stock has a market value of $256 million, based on the number of shares it had outstanding as of March 13. That was when its latest 10-K filing said that Second Sight has 23.25 million shares outstanding. But at $8.88 now, EYES stock is almost four times greater than the price on Jan. 5, when it was at $2.23. That meant that the market cap then was just $51.85 million.
The Pixium Vision Deal
The deal still requires shareholder approval, so theoretically the deal could fail. It specifically says that 34.876 million shares will be issued to Pixium Vision in exchange for the “assets and liabilities in relation to its neuromodulation technology used in the treatment of blindness.”
Therefore, at the time, the value of that technology transfer was worth $77.78 million. But now, at $8.88, those assets are artificially worth more at $309 million. Management might want to pay this extra high price for those assets.
Management would have to pay a $1 million termination fee to walk away from the deal. Moreover, Pixium may threaten to continue to oppose Second Sight’s in Europe, like they were prior to the deal.
But then Second Sight would be able to raise the $25 million it is required to in the deal and keep the money under its own control. In the deal, it would have to hand the control over to a holding company of which its shareholders owned just 40% (prior to the financing).
The 10-K Seems To Underline the Deal Risk
Now that the stock is higher, Second Sight should be able to raise the $25 million with just a 10% or so dilution. This is way less than at least a 66% dilution if it sells the 34.8 million shares (for no money) to Pixium and then raises the $25 million.
In fact, the recent 10-K seems to acknowledge this possibility. Here is one reason, which the company cites as a risk (page 40 of the 10-k):
“During early March 2021, …the market price of Second Sight common stock increased substantially compared both to the price of Second Sight common stock at the time of execution of the Memorandum of Understanding and with the market price of Pixium stock. This disparity, should it continue or increase, may change the way Second Sight shareholders evaluate the business combination and cast doubt as to its ultimate approval.”
Then the company listed another reason. It might not want to spend money on a deal that won’t get approved:
” Although holders of approximately 30% of our outstanding common stock have signed voting agreements to support the Pixium transaction, we may spend substantial amounts of money in pursuit of the transaction only to find that it does not receive the required shareholder approval. “
In other words, the 30% of shareholders who have approved the deal already may not want to go through with the deal. At this point, I think it makes more sense them to either (1) renegotiate the 34.8 million shares so that it reflects just $77 million at today’s price level, or (2) pay the $1 million termination fee from an underwritten $25 million equity underwritten proceeds.
What To Do With EYES Stock
The deal was originally supposed to close at the end of Q1 or the beginning of Q2. So far, the company has not even scheduled a shareholder meeting to vote on approving the deal. I suspect that the company is renegotiating the deal so that shareholders of Second Sight do not have to give up control to the French company.
Until then, you might want to wait before buying EYES stock. For example, if the deal does go through, expect to see EYES stock fall, as control passes to a non-US company. By the way, I highly suspect that this might have to receive CIFIUS approval in the U.S. as well, although this was not listed as a closing condition.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.
