On Tuesday September 27th 2022, psychedelics company MindMed (MMED.NE) announced the pricing of a public offering of common shares and warrants. An offering that the market saw as highly dilutive to existing shareholders.
Details of the offering are as follows:
Underwritten public offering of 7,058,823 common shares, together with accompanying warrants to purchase 7,058,823 common shares. The combined offering price to the public of each common share and accompanying warrant is $4.25. Each common share will be sold in combination with an accompanying warrant, and each warrant is exercisable to purchase one common share. The accompanying warrant will be immediately exercisable and has an exercise price of $4.25 per common share and expires five years from the date of issuance.
All the securities are being sold by MindMed. The gross proceeds are expected to be approximately $30 million before deducting underwriting discounts and commissions. The offering is expected to close on or about September 30th 2022.
The offering will not be made available to residents of Canada.
So why are shareholders upset? Firstly, the financing is at a significant discount to the market.
The stock was trading above $8 a day before the financing was announced. The significant discount to the market saw the price drop down -47%. Prices are now bouncing from $4.25.
The stock has a major gap to fill. In technical analysis, gap downs are bearish. Sellers can enter anytime from now to any points of the gap. The way to play the gap is through a gap fill. Essentially waiting for the price to reclaim $7.50, and hence get a gap fill. This would be a very bullish case. Fundamentals of the company might get some to buy the dip now.
This gets me to the second reason why investors are angry: the company is raising $30 million, but as of June 30th of this year, MindMed reported a cash position of $105.7 million. The company really isn’t aching for cash and one can understand why existing shareholders are upset on this highly dilutive offering.
Significant investors are angry and are calling for the termination of this highly dilutive equity offering.
Today, FCM MM Holdings LLC sent a letter to the MindMed Board of Directors informing them of FCM’s opposition to this public offering. In the Letter, FCM details how the Board’s and management’s actions, including the Dilutive Offering, have destroyed shareholder value, calls for the Board to immediately terminate the offering, and pledges to take action to hold the Board accountable.
“We are committed to taking whatever actions are necessary to protect the interest of shareholders”
“We are committed to taking whatever actions are necessary to protect the interest of shareholders, and we look forward to engaging in a zealous proxy campaign” said FCM Chief Executive Manager Jake Freeman.
The full letter can be read here. FCM represents early investors in MindMed including Scott Freeman and Chad Boulanger. FCM represents an investment of 6.1% of MindMed’s shares outstanding.