Among the micro-cap stocks seeing an impressive surge today is Evofem (OTCMKTS:EVFM). This little-known women’s health company provides a range of innovative products aimed at improving women’s sexual health. From an FDA-approved product, Phexxi (a hormone-free contraceptive), to other products in the company’s pipeline, Evofem has made some progress in its niche market. However, the stock’s long-term chart is ugly, and EVFM stock has been trending toward zero.
Indeed, despite a near double-up in the company’s value today, Evofem trades at a market capitalization of only $1.4 million. That’s despite an impressive acquisition offer from Aditxt (NASDAQ:ADTX), in which Aditxt has agreed to buy Evofem for around $100 million. This deal is inclusive of debt, meaning it’s unclear exactly how much existing shareholders will benefit from the deal.
Let’s dive into what investors may want to make of this news and whether there’s more room to run from here.
Why Is EVFM Stock Surging Today?
In the above-mentioned press release, Evofem noted that this transaction, which approximates $100 million, will rid the company of its senior secured debt and will provide the company with a $3 million loan to cover the legal costs associated with the transaction. Thus, it’s clear that Evofem is strapped for cash, and given the company’s stock price, it appears existing investors have mostly cleared out of the name for fear of ongoing dilution.
Those fears have abated with this deal that’s now on the table. But investors clearly have their work cut out for them in determining how much of this $100 million will ultimately flow through to shareholders, given that this appears to be an all-stock transaction.
The details of this deal suggest that all existing EVFM shares will be converted to 610,000 shares of ADTX stock upon closing. This would value Evofem at around $4 million following the recent surge in ADTX stock today. If true, it appears Evofem is undervalued, and that’s part of the reason behind today’s rally in EVFM stock.
Ultimately, like all deals of this nature, there’s some risk the deal falls through, and it’s also unclear where Aditxt’s share price will end up by the time the deal closes. That said, this acquisition appears to make sense for both parties, and I expect to see cigar butt investors diving into this name deeper in the coming days in a bid to push its valuation toward fair value.
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On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
