CHEK - Symetryx Today Issues Open Letter to Shareholders In Regard to the Upcoming Annual General Meeting | Benzinga
Recommends Fellow Shareholders Vote AGAINST Keystone Transaction & the Check-Cap Board Nominees - Further Recommends a Vote FOR the Symetryx Slate of Director Candidates
Cites Unrealistic and Aggressive Valuation of Keystone Used to Justify the Merger and Troubling Cash Burn by Check-Cap Board & Management
TORONTO, Nov. 28, 2023 /PRNewswire/ - Symetryx, a holder of 5.6% of Check-Cap Ltd. (NASDAQ:CHEK) shares, today issued the following open letter to shareholders. In the letter Symetryx cites, among other items, its serious concerns and reason for voting AGAINST the proposed transaction with Keystone Dental. Symetryx discusses its concerns around the actions of the Board in its evaluation and approval of the transaction, including the highly questionable valuation of Keystone Dental. Further, Symetryx urges all shareholders to support and vote FOR its five highly qualified, experienced and independent director nominees who will bring accountability back to CHEK and find a more suitable merger partner. One that will not cause the alarmingly high level of dilution to the shareholders that the Keystone transaction, if approved, would entail. The full text of Symetryx's letter follows:
November 28th, 2023
Dear Fellow Check-Cap Shareholder,?
We are writing to you today on behalf of Symetryx Corporation ("Symetryx"), a now 5.6% holder of Check-Cap Ltd. ("Check-Cap"), with regards to the notice of Annual General Meeting of Shareholders filed on November 13th, 2023, by the Company. See 425 (sec.gov). Symetryx is a very diverse private venture capital and investment company that is invested in a variety of assets, including computer, technology, and cyber-security, agricultural technology, real-estate and senior living-care, AI, gold, lithium and copper mining and audio technology.
The upcoming Check-Cap Annual General Meeting is scheduled to be held on Monday December 18th, 2023, at 2 PM local time at the offices of Check-Cap's legal counsel, FISCHER (FBC & Co.), located at 146 Menachem Begin Rd., Tel Aviv 6492103, Israel. A Proxy Statement and proxy card or vote instruction form should have been mailed or emailed to you. According to the Company's proxy materials, you may vote by mail or by internet.
The Proxy statement is very lengthy and may be quite confusing. We have attempted to distill down the hundreds of pages in the proxy statement to the most concerning and salient points below. In essence, Symetryx's position, how we intend to vote, and our recommendations to our fellow Check-Cap shareholders is to vote your shares as follows on the various resolutions:
- Our position on Proposal 1- vote AGAINST the Keystone Merger Proposal
As one of the largest Check-Cap shareholders (currently 5.6%) we're at a loss to understand how the proposal to merge Check-Cap with Keystone Dental, a manufacturer of dental appliances ("Keystone Merger") could be value-enhancing to ALL shareholders.
In spite of the length of the proxy materials, based upon the review of the limited information thus far provided to shareholders regarding the Keystone Merger, we believe that there are several problematic issues which compel us not to support this value-destructive and dilutive transaction:
- Valuation: It isn't clear how all the IP that Check-Cap shareholders have invested in is being valued or considered under the combined entity.?The valuation of Keystone at $225M seems elevated, for a traditional manufacturing company- that would mean that the EBTIDA for Keystone would be $37m, which seems highly unlikely based -on its revenue of $61m for F'22 (or $66M for F'23).?
- The following chart is a summary of Keystone's cashflow projection for the next 10 years, according to the Proxy statement (page 35):
- Valuation: It isn't clear how all the IP that Check-Cap shareholders have invested in is being valued or considered under the combined entity.?The valuation of Keystone at $225M seems elevated, for a traditional manufacturing company- that would mean that the EBTIDA for Keystone would be $37m, which seems highly unlikely based -on its revenue of $61m for F'22 (or $66M for F'23).?
As you can see above, Keystone is not even projected to be profitable until 2026 with an unlevered cash flow of only $5.7 million. Keystone's EBITA (earnings before interest, taxes, and amortization) for 2025 is projected to be $2.8 million. Manufacturing companies such as Keystone Dental are typically valued at 4 x EBITA, i.e. $11.2 million. See Valuation Multiples for a Manufacturing Business - Peak Business Valuation
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- Notwithstanding this, the Check-Cap proxy (on page 31) values Keystone Dental at a staggering $264.7 million, which is an incredible 94 x EBITA, which we believe is completely unreasonable and inflated to a degree that defies reality.
- If such a ridiculously high multiple isn't enough cause for concern, based on our analysis of the information, page 31 of the Proxy statement highlights Keystone's significant history of losses and its expectations that it will continue to lose money for the foreseeable future.
The Prospectus for the merged company states on page 20, Summary Risk Factors, a litany of potential concerns around the combined company. Most striking is the section that states: "Some of Keystone's and Check-Cap's directors and officers may have interests that are different from yours, which may influence them to support or approve the Business Combination and the issuance of shares of New Parent common stock." Shareholders should rightly question what these different interests might be and how they have influenced the selection of Keystone as a merger partner. We urge shareholders to read this section in its entirety.
The Prospectus for the merged company states on page 29 states:
The lack of a public market for New Parent common stock makes it more difficult to evaluate the fairness of the Business Combination.
The Prospectus for ...