$PMD - Psychemedics Corp "going private transaction" - small actionable idea
Psychemedics Corp's proposed reverse stock split and delisting at $2.35 per share
1. Background
Following the spot-on tweet by
(X handle @ClarkSquareCap), who deserves credit and gratitude for this small trade idea (and many other fantastic posts and creating so much value for the investment community), it came to my attention that on August 12, 2024, PMD 0.00%↑ (Psychemedics Corp) announced a plan to “go private”. In other words, Psychemedics seeks to terminate the registration of its stock following the completion of a proposed reverse stock split and to delist from trading on Nasdaq. The announcement follows a somewhat standard logic of reducing the number of shareholder below 300 and pursuing a delisting.2. Terms and timing
The proposed transaction will involve reverse stock split with a ratio between 1-for-4,000 and 1-for-6,000. The holders of shares in an amount less than the reverse stock split ratio denominator are promised to be cashed out at a price of $2.35 per share for their fractional shares.
Psychemedics also disclosed that the intended transaction is supported by a “fairness opinion” delivered by Mirus Capital Advisors Inc.
It has also been simultaneously disclosed to the SEC that Peter Kamin and his affiliated entities, such as 3K Limited Partnership have purchased up to 1,595,744 PMD shares for $2.35 per share for an aggregate purchase price of up to $3,750,000. Psychemedics will use these proceeds to finance the proposed reverse stock split and the related corporate/legal expenses.
The transaction and the termination of the registration and delisting require the formal approval of Psychemedics’ stockholders. It is contemplated to take place at the Company’s 2024 Annual Meeting of Stockholders, which should take place in the fall of 2024.
3. Small actionable trade
With PMD currently trading between $2.28 and $2.30 as at the date of this post, the small profit between USD170 and USD270 could look like this:
Step 1: Buying 5999 shares of PMD 0.00%↑ (at or below $2.30 per share)
Step 2: Following the SEC disclosures and the final approved reverse stock split ratio (currently set between 1-for-4,000 and 1-for-6,000). If the final ratio is set to, say, 1-for-5500, sell the 500 shares in the open market (given the expected price convergence, one may expect the price of these 500 shares to slightly increase).
Step 3: Upon the approval of the transaction in the fall of this year and the eventual delisting, collect the $2.35 per share, which should work out to around USD170 for a 1-for-4000 ratio and USD270 for a 1-for-6000 ratio.
4. Final thoughts
It is sad to say goodbye to Psychemedics. I have followed this company and its turnaround efforts for a few years now . Peter Kamin is a highly regarded and - in my humble opinion - a very talented investor. His is deeply invested in PMD and his average share ownership cost is much higher than $2.35.
At this stage, I do not exclude that ignoring the trade described herein, acquiring more than 6,000 shares (i.e. way more than 6,000 shares) and staying a minority shareholder in a delisted privately held PMD alongside Kamin could actually yield great medim to long-term outcomes. As an example, just today Psychemedics disclosed the launch of a new ketamine hair testing service, which should further contribute to the value proposition of PMD’s portfolio.
Finally, earning a meager 2.2% current spread on this trade may simply not be worth your time and effort, especially if you have (as you rightly should be) have more profitable and scalable ideas.
Disclaimer
Not investment advice. Do your own due diligence.