Synergy.

The Independent Expert (IE) seems to pay scant attention to the Synergistic benefits that accrue to Qiagen on purchasing the Cellestis business. There are very significant synergistic benefits that Qiagen seem unwilling to pay for.

Contrast this stance with the following public statements that describe the Synergistic benefits that Qiagen would gain.

"Cellestis has developed a technology that is highly complementary to our portfolio and which we expect to migrate onto our QIAsymphony, QIAensemble and our point of need platforms, thereby adding a new, unique assay menu to these QIAGEN platforms. We believe the addition of Cellestis will further strengthen our capabilities to offer innovative sample and assay technologies that are making improvements in life possible." - Peer Shatz, CEO Qiagen N.V.

"We have many of the same customers for HPV and the QuantiFERON test, particularly in the United States with large reference labs or in hospitals. And profiling the QuantiFERON CMV test has a potential to accelerate our fast growing leadership position in viral load monitoring. This would include monitoring of immune compromised patients such as those with HIV, Hepatitis, or people or patients taking medicines as pressed immune system. We also see a strong link to our industry leading transplantation position. In personalized healthcare we see significant opportunities given that several new classes of medicines require patients to be free of latent TB. We will also consider developing tests for other infections given that a number of medicines require for example latent viral testing before treatment initiation and this could be done with this technology. So this is a solid deal inline with our strategic and proposed at a full and fair price. We are adding next generation, unique and proprietary technology to query a previously untapped information source. QuantiFERON is highly synergistic with our molecular diagnostics portfolio and we will develop assays matching our DNA based products. We will be migrating this technology to our platforms. It provides us with strong leadership position in TB one of the most critical diagnostic areas. And this is a financially attractive deal." - Peer Schatz, CEO Qiagen N.V.

"Cellestis will provide us with exclusive access to QuantiFERON technology, which allows a new dimension of testing, pre-molecular testing where disease detection can be undertaken far earlier than possible with any other diagnostic method. We will migrate this technology to our automated platforms in particular to QIAensemble, and develop a range of tests that are highly complementary with our DNA and RNA-based molecular diagnostics." - Peer Schatz, CEO Qiagen.

"We believe QuantiFERON is highly complementary to our DNA and RNA based molecular diagnostics. So we see the opportunities where appropriate and clinically relevant of marrying our molecular diagnostics portfolio with QuantiFERON based tests.  This acquisition has a technology focus. But TB also has an attractive market dynamic." - Peer Schatz, CEO Qiagen

"We believe QIAGEN as an industry-leading company provides the best strategic fit in terms of capabilities and resources. As part of QIAGEN, we will be able to accelerate our growth much faster than as a standalone company and offer even greater benefits to patients and healthcare providers."  - Anthony Radford, CEO Cellestis.

Independent Expert Valuation - Critique Summary to Date.

There is so much to say about the Independent Expert (IE) Valuation that I am afraid it may well go on for several posts yet.

However, it has been pointed out to me that the detail in my critique posts is bordering on being as long winded and difficult to absorb as the IE valuation itself. In an attempt to assist all shareholders, in this post, I will provide a summary of where we are up to in point form.

• The IE has chosen to value Cellestis using an Earnings Multiple methodology, rather than using a DCF. I have given the reasons why this is inappropriate. However, you don't need to rely on me to tell you that. As our good friend Rog on his BLOG points out, Deloitte themselves agree with us.

In a submission to ASIC (Deloitte response to ASIC Consultation Paper 143) Deloittes made it clear that with regards to DCF:

alternative valuation methodologies that may be used to value an Asset are likely to be less reliable that a DCF approach. In our view, other alternative approaches such as a market based method (resources multiples observed from comparable transactions) are approximations of a DCF approach and require or imply significant assumptions to be made which are often difficult to apply with a reasonable basis

• I have shown why we believe that the earnings multiple (18 to 20) that the IE has used in his valuation is too low. (I have more to say on this in later posts). The result of this is an excessively low valuation.

• The IE has subsequently used a DCF valuation to "confirm" the primary valuation. I have shown why we believe that the compound effect of his unnecessarily pessimistic view of the future and selection of an excessively high Discount Rate has resulted in a valuation that is not justifiable. Furthermore, the IE DCF valuation provides no premium for control.

• Far from "confirming" the primary valuation, a corrected DCF valuation clearly demonstrates that the primary valuation that IE has used as his primary methodology is flawed in choice, content and result.

In the end, we believe that the IE valuation cannot be relied upon by shareholders to establish that the offer of $3.55 per share by Qiagen is "fair and reasonable" and "in the best interests of shareholders".

Vic
Spokesperson
CSAG

Disclaimer. Nothing in this document should be construed as personal financial or legal advice. All information is provided on the understanding that you will take whatever steps are necessary to ensure that any actions that you take are the most approriate for your own personal circumstances. The author accepts no responsibility for the impact of any consequent outcomes.

Independent Expert Valuation - Critique Part Four.

Discount Rate.


In producing a DCF Valuation, it is essential to knowledgeably and with full understanding choose a Discount Rate (DR) that makes sense in the future situation that we are attempting to describe.

In the interests of not putting you to sleep, I will not repeat here the actual meaning and relevance of the Discount Rate. I have covered that in previous posts, including the CSAG Valuation. Instead, I will discuss the Independent Expert's choice of Discount Rate.

Firstly, let's have another look at the DCF valuation table provided by the IE.

The important thing to notice is that a change of just 1% in the choice of DR makes a substantial difference to the final value. As an example, in Scenario 2, a change in DR from 14% to 13% results in the DCF value increasing from $3.76 to $4.21. (an increase in value of almost 12%).

So, how has the IE chosen his Discount Rate?

Here is what he says:

a cost of equity of 13.4% to 15.0% based on:

•  a risk free rate of 5.6% based on the five day average of the zero coupon ten year Australian government bond as at 4 May 2011.
•  an equity market risk premium of 6.0%
•  a levered beta of 0.8 to 0.9
•  a company specific risk premium of 3% to 4%, reflecting the high level of uncertainty associated with the growth potential of Cellestis’ product

The Discount Rate is calculated as RFR + (EMRP * Beta) + CP


This results in a Discount Rate of between 13.4% and 15%. Rather strangely, after calculating those figures, he has then actually used Discount Rates of 14% and 15% in his calculations.

Now, that is a quite conventional computation for calculating a Discount Rate. However, let's look at it item by item

Risk free bond rate (5.6%).
Nobody can really argue with that, the risk free bond rate is what it is. However, that is a pre-tax rate, whereas the IE states that he is calculating an after tax Discount Rate. Depending upon an individuals tax rates the actual return from investing in these bonds would be approximately 3% to 4%. If he is calculating an after tax DR then we would have expected him to use the after tax risk free bond rate. Alternatively, he could consider his DR as a pre tax DR and apply it to Cellestis' EBIT, rather than NPAT. Compare apples with apples.

Equity Market Risk Premium (6%).
This is where most people get a little confused. This premium has nothing at all to do with any perceived risks in the company that you have chosen to invest in. It is, in fact, a risk premium that is assigned simply because you are investing via the stock market (as opposed to some other market, such as the bond market, the real estate market, etc.). It is not a business risk, it is the risk of share prices going up and down on the stock market. It represents the extra return that you, the stock market participant, require because of the vagaries of share prices.

EMRP is generally calculated from the historical volatility of stock prices in the stock market as a whole.

Personally, as a long term investor, I am not particularly interested in EMRP. The reason for that is that I do not ever put myself in a position where I have to sell my investments at any particular time (I'm sure you can see the irony that the current event creates here). I have no reason to sell my investments in the times that the share market is weak. I invest in businesses and therefore do not consider that EMRP has any real relevance to me.

I understand and am happy to accept that others may feel differently.

Here is the crunch. If Qiagen are successful in purchasing Cellestis, then Cellestis will no longer be listed on the stock exchange. If Cellestis is not listed on the stock exchange then it is not subject to any share market volatility risk and Qiagen do not need to take that (now non-existent) risk into account when calculating what Cellestis is worth to them.

Levered Beta (0.8 to 0.9).
Firstly, for Cellestis, we can disregard the superfluous qualifier "levered". The difference between a levered and an unlevered Beta is purely based on the debt of the company. Cellestis has no debt and therefore there is no difference between the levered or unlevered Beta of Cellestis.

In simple terms, the Beta is a multiplier that is applied to the Equity Market Risk Premium to account for that fact that the market price of individual stocks have different volatilities than the market as a whole. The Beta of less than one that the IE is using tells us that the Cellestis share price is less volatile than the market as a whole.

The Independent Expert has therefore used an adjusted Equity Market Risk Premium of between 4.8% and 5.4%.

Company Risk Premium. (3% to 4%).
This is the premium return that an investor in Cellestis expects in exchange for the risk that things may not turn out as good as projected in the future earnings table.

The IE has not given any reason for seemingly arbitrarily selecting this Company risk premium so it is a little hard to sensibly analyse his choice.

My general comment here would be that the IE has produced an extremely conservative future earnings projection for Cellestis and then is still not happy with it so has discounted the value further by applying an arbitrary 3% to 4% risk premium. How you would actually do that with any level of justifiable confidence is beyond me.

In the end.

I am not going to tell you what DR the IE, or you, should use. However, I am absolutely confident that his 14% to 15% Discount Rate is significantly higher than that which any reasonable analyst would use. Remember that even a 1% change in the Discount Rate used will result in a very material change in the valuation calculated.

The compounding of the IE's incorrect assumptions, miscalculations and errors has resulted in a valuation of Cellestis that I cannot in any way rely upon in making my decision about this offer by Qiagen.

Vic
Spokesperson
CSAG

Disclaimer. Nothing in this document should be construed as personal financial or legal advice. All information is provided on the understanding that you will take whatever steps are necessary to ensure that any actions that you take are the most approriate for your own personal circumstances. The author accepts no responsibility for the impact of any consequent outcomes.

Independent Expert Valuation - Critique Part Three.

In the Critique Part Two I closed with a comment about the lack of a control premium in the Independent Expert (IE) DCF Valuation.

Good cyber friend "Griggy" has pointed out yet another contradiction in the IE Valuation that relates to this.

The IE, in discussing the control premium in his FME valuation, makes the following statement.

some of the observations of very high premiums are for relatively small listed companies where there is typically less trading liquidity in their shares and they are not closely followed by major broking analysts. In such situations, the traded price is more likely to trade at a deeper discount to fair market value on a control basis. Accordingly, the observed control premiums to share trading prices for such stocks will tend to be higher.

Well, paint me red and call me a fire engine, those specifications couldn't better define the ASX trading situation of Cellestis.

• Cellestis is a small listed company. 
• Cellestis has a very low trading liquidity. 
• Cellestis is not covered by any major broking analysts.

But, don't take my word for it.

The IE himself states the following:

Cellestis shares are thinly traded on the ASX. Consequently, Shareholders face limited opportunities to achieve liquidity in respect of their shares in Cellestis. (Annexure 1 - p6)

...many of the companies identified above are considerably larger than Cellestis... (Annexure 1 - p35)

And yet, after examining a basket of other takeover targets that he seems uncertain as to whether they are similar to Cellestis or not, he reaches the following conclusion:

we consider a control premium at the lower end of the range to be appropriate for Cellestis

If that was not bad enough, there is more.

Special purchasers may be willing to pay higher prices to reduce or eliminate competition, to ensure a source of material supply or sales, or to achieve cost savings or other synergies arising on business combinations, which could only be enjoyed by the special purchaser. Our valuation of a share in Cellestis has not been premised on the existence of a special purchaser. (Annexure 1 - p12)

We probably don't need the IE to make this suggestion for us:

a potential acquirer with an established distribution network could leverage its existing distribution network to increase sales beyond the levels that could currently be achieved by Cellestis. (Annexure 1 - p37)

Qiagen themselves have said that they intend to integrate the Cellestis QuantiFERON technology into their existing diagnostic platforms to increase its value to them.

Clearly, Qiagen anticipate that they will be able to increase the Earnings of Cellestis through synergies. In fact, the ability of Qiagen to make a better fist of managing Cellestis has been a central argument that has been given to us for selling our shares. Obviously the expectation is that Qiagen will achieve a better earnings growth profile than the pessimistic ones that the IE has presented to us.

If the above does not define a "special purchaser" who will increase earnings through synergies then I will turn on the sirens and lights.

As the IE has himself said above, such a purchaser should be willing to pay a higher price for that.

And yet, the IE persists with his use of a control premium at the lower end.

In my next post I will get back to critically examining the mechanics of the IE Valuation.

Vic
Spokesperson
CSAG

Disclaimer. Nothing in this document should be construed as personal financial or legal advice. All information is provided on the understanding that you will take whatever steps are necessary to ensure that any actions that you take are the most approriate for your own personal circumstances. The author accepts no responsibility for the impact of any consequent outcomes.

Independent Expert Valuation - Critique Part Two.

The Independent Expert (IE) has been employed by Cellestis and paid for with our money for the worthwhile purpose of independently protecting us (the shareholders) from a takeover that is unfair to us or not in our best interests. For that reason it is absolutely essential that we examine the IE Valuation in great depth to ensure that he has, in fact, produced a Valuation that we can rely upon in making our decisions.

I suggest that he has not.

The Valuation Method.


I wrote about this yesterday and just wish to touch on it again in summary.

The IE believes that a FME valuation is more appropriate in valuing Cellestis than a DCF valuation. His rationale for that decision is essentially that "it may be difficult to estimate future cash flows". This is absolutely true. None of us have a crystal ball that will project the future with a 100% accuracy. However, given that valuing an operating business is always about projecting the future, this difficulty applies to any valid valuation method, including the FME valuation method chosen by the IE. Furthermore, the FME valuation method suffers further because it does not provide any meaningful representation of the future. What does a FME multiple of 19 really tell you about the projection of the future? On the other hand, a DCF valuation uses and displays a projection of the future that can be critically examined.

Anyway, having rejected the DCF valuation, the IE has produced a DCF valuation to "confirm" the FME valuation. Let's have a look at his DCF valuation.

The Independent Expert DCF Valuation.

The IE has not provided the year by year detail of his DCF valuation. This is somewhat surprising, given that he has presented the detailed CSAG DCF valuation.

He has, instead, provided a scant set of assumptions, percentages and numbers. Fortunately, we can use that information to "reverse engineer" his DCF valuation.

In doing so we rely upon his assumptions which include:

the overall market size of latent tuberculosis tests by number of tests conducted per annum in the developed world (45 million as at 31 December 2010)

future gross profit margins are assumed to remain relatively stable

Given that he has assumed that Gross Profit margins are projected to remain stable and we have previously been informed that we cannot expect any decrease in manufacturing costs as volume increases then he has assumed that the selling price of the product will remain stable. This means that the revenue growth profiles that he has provided will largely equate to sales volume growth profiles.

The IE provides three scenarios for his DCF valuation.

Scenario 1: revenue growth of 30% p.a. during the initial years, reducing progressively to 8% p.a. over the Projection Period. Under this scenario, Cellestis is projected to reach a market share of 10% in four years i.e. by FY 2015. Cellestis’ market share by the end of the Projection Period is assumed to be approximately 20%

 Scenario 2: revenue growth of 30% p.a. during the initial years, reducing progressively to 5% p.a. over the Projection Period. Under this scenario, Cellestis is projected to reach a market share of 10% in five years i.e. by FY 2016. Cellestis’ market share by the end of the Projection Period is assumed to be approximately 14%

Scenario 3: revenue growth of 30% p.a. during the initial years, reducing to 3% over the Projection Period. Under this scenario, Cellestis is projected to reach a market share of 10% in six years i.e. by FY 2017. Cellestis’ market share by the end of the Projection Period is assumed to be approximately 11%

Using the above assumptions we can firstly "fill in the gaps" to provide year by year growth detail that matches these assumptions.

Here is the result. (click on the image for full size)

The first comment is that Scenario 3 is a mathematical impossibility. Given that the growth in 2023 is assumed by the IE to be 3% it is actually impossible to get the market share down to the 11% (4.95m tests) unless you were to assume that in the years 2018 to 2022 the growth dips significantly below 3% and then jumps back up to 3% in 2023.

It is up to us to look at these growth scenarios to decide if we believe that they are, in fact, realistic. Personally, I think not.

It certainly doesn't seem realistic to see two years of 30% revenue growth to suddenly fall off a cliff to a growth of 13%, 11% or 9%.

Our lead product, QuantiFERON-TB Gold In-Tube only received FDA approval in 2007 and CDC guidelines in 2010. Even so, we have already achieved a 5% market penetration. USA volume sales have been growing at 50% p.a.. Remember that if the A$ stops climbing (it doesn't even need to fall) then the growth in foreign markets will flow directly through to revenue denominated in $A. Does it really seem realistic to expect that over the next 12 years we will only increase our market penetration to 11%, 14% or 20%? It is important to understand that the 45m potential market is purely our target (developed world) market. It does not include the underdeveloped and developing world. Neither the Company or us have ever built those markets into our projections. There is no reason whatsoever that the superior diagnostic QFT-TB should not ultimately largely replace the much detested TST test in the developed world.

Bear in mind also that none of the IE valuation models have factored in any revenue from additional products developed on the QFT platform. As recently as the last AGM, the Directors provided details of several potential diagnostics being developed on the QFT Platform. It is not unreasonable to assume that at least a proportion of these potential diagnostics have real commercial potential - otherwise our Company would not have spent the time and effort in developing them. That potential has value.

Having now derived the IE revenue projections from his own assumptions, we could produce full DCF valuations for the 3 scenarios. However, to save myself a lot of work, I am going to assume that the IE has used his growth projections correctly to perform the mechanics of the DCF. His outcome is summarised in the following table.

Note that to get the DCF valuation down to something approaching the $3.55 that he is assuring us is fair and reasonable and in our best interests, he has to assume his scenario 2 (sales in 12 years time of 14% of the market) and a Discount Rate of between 14% and 15%.

I will deal with his selection of Discount Rate in a later post.

For the moment let's just try to understand what his DCF valuation is saying.

"If Qiagen buy Cellestis at $3.55 per share then, even if sales were to only ever achieve those outlined in Scenario 2 then they would achieve an effective annual return on their investment of more than 14%."

Of course we know and Qiagen know that Cellestis has the potential to achieve much much more than the revenue outcome described in Scenario 2.

If, on the other hand, were we to believe the still pessimistic Scenario 1 view of the future of Cellestis and a Discount rate of 13% then the value of a Cellestis share is $5.55 (56% above the offer price).

In his conclusion of the DCF valuation the IE states:

"The estimated value of a share in Cellestis on a control basis under each of the three cash flow scenarios discussed above and a range of higher and lower discount rate assumptions, as set out in the table below."

Note that he has suddenly decided that his DCF valuation that has not mentioned anything about a control premium is now a representation of the value of Cellestis on a control basis. Even if we were to assume that all of his projections and his discount rate are applicable then this is a sharemarket valuation. It is not a "takeover valuation". It includes no premium for control.

Vic
Spokesperson
CSAG

Disclaimer. Nothing in this document should be construed as personal financial or legal advice. All information is provided on the understanding that you will take whatever steps are necessary to ensure that any actions that you take are the most approriate for your own personal circumstances. The author accepts no responsibility for the impact of any consequent outcomes.

Independent Expert Valuation - Critique Part One.

By now many of you will have read the Independent Expert Valuation online at THIS LINK. No doubt we will all receive the printed copy in the mail over the next few days.

The CSAG have held a very pragmatic stance on this situation. The Independent Expert (IE) has had full and unfettered access to the Board, Management and Books of Cellestis. Given that, then had the IE been able to legitimately and convincingly demonstrate that $3.55 is a fair and reasonable price and is in the best interests of shareholders, we would have had no choice but to accept that.

Unfortunately, the IE has not been able to do that. In fact, he has not been able to present a valuation case that comes even close to justifying this offer.

The IE has used some 65 pages in an attempt to legitimize what, in the end, is a very thin and fragile valuation calculation.

Now, I live and breathe financial documents and have spent the weekend devouring this document. I do understand, however, that many of you have better things to do with your lives than wade through pages and pages of financial justifications. I will make it my task to answer this valuation as cogently, directly and concisely as is possible. Having said that, it is a big task. I anticipate the full analysis to run over several posts.

The IE has chosen to value Cellestis using the "capitalisation of future maintainable earnings" (FME) valuation methodology. Whilst this may sound impressive it is, in fact, nothing more or less than:

"Take the 2011 Earnings of between $15m and $16m and multiply by a multiple of between 18 and 20"


That's it! The rest of the valuation document is purely an attempt to justify that calculation.

So, let's work our way through this.

Choice of Valuation Methodology.


The IE has chosen to use a FME valuation method, rather than a DCF valuation (even though he subsequently does perform a DCF valuation - more on that later). His justification for this choice is:

"The discounted cash flow method is a commonly used valuation methodology in sectors such as the resources, infrastructure and life sciences sectors where the cash flows of a business are subject to variability over time."

and

"The capitalisation of maintainable earnings [FME] method is most appropriate where the company’s earnings are relatively stable."

 Do I need to point it out? Using those justifications the choice of valuation method should be exactly the opposite to that which the IE has chosen. Cellestis' earnings are not "relatively stable". They are, in fact, "subject to variability over time". Clearly, a DCF valuation would have been much more appropriate to value Cellestis than a FME valuation. The reason for the choice will become obvious when we look at the IEs "confirmatory" DCF valuation later.

Regardless, let's have a look at the IEs chosen valuation in some detail.

The Capitalisation of Future Maintainable Earnings (FME) Valuation.


I don't think that any of us would have any objection to his assumption of 2011 Earnings of between $15m and $16m. I should point out that for some reason the IE has chosen to operate on a Jan-Dec Financial year, rather than the Australian standard July-June Financial year. It is also worthwhile to bear in mind that that projected earnings figure for 2011 will have been after taking into account the one-off $1.9m cost of running this Scheme of Arrangement.

However, the principle of a Capitalisation of Maintainable Earnings is supposed to be based around just that - Maintainable Earnings. The IE has simply taken the earnings for Calendar Year 2011 (actually the average of FY 2011 and 2012) and called that "Maintainable Earnings". That is hardly a rigorous methodology for calculating exactly what the maintainable earnings will be of the Company going forward.

The IE has then chosen a multiplier of 18 as an appropriate multiplier to arrive at a valuation. He justifies this by taking the average multiplier of a basket of selected Companies. It should be noted that not one of these Companies is an Australian listed Company. Furthermore, it is simply a failure of logic to take an average of a bunch of Companies that sound as if they might be somewhat similar to Cellestis to arrive at a suitable multiplier.

To give the IE credit, he does admit that none of these Companies are highly comparable to Cellestis. Given that they are not highly comparable then why we should accept a comparison between Cellestis and these Companies is beyond me.

He then goes on to express the opinion that the only two Companies that have a "similar earnings growth profile" are Seegene and Illumina. This is important because the selection of an appropriate multiple is all about GROWTH. A Company with a higher projected growth is normally valued at a higher multiple. Seegene and Illumina have current multiples of 36.1 and 27.2 respectively. Substituting those multiples into the IE valuation formula would give Cellestis a valuation of between $4.44 and $6.20.

Given that the IE looks favourably upon the method of averaging comparable multiples it is quite noticeable that when he examined the multiples paid for the takeover of similar Companies and came up with an average of 28.1, he did not apply this multiple to his calculation of value. After all, we are looking at a takeover of Cellestis by Qiagen. Surely a comparison with similar takeovers would be more appropriate than a comparison of the multiples of Companies trading on the sharemarket which includes no premium for control. Had he used the average "takeout" multiple in his methodology then the values that he would have arrived at would have been between $4.57 and $4.86

By the IEs own figures, Cellestis revenue is projected to grow by 30% in 2012. He states that he has been given the projection for 2013 but has not directly revealed it to us. It would be hard to believe that growth in 2013 is projected to "fall off a cliff". There is certainly no evidence presented to sustain such a belief.

Cellestis is absolutely unique. It is an Australian biotech that has succeeded in taking a product from laboratory bench to profitable commercialization while still having a formidable growth potential.

If one was to use a FME valuation methodology, the question becomes "what is an appropriate multiple to apply to current year earnings to calculate a value?".

As I have already expressed, I do not favour a FME valuation if for no other reason than a FME multiple is an extra step removed from any projection of the future. That is, it is not really possible to sensibly translate any time related future into a simple multiple. A DCF Valuation does a much better job of this.

If I was pushed to apply a realistic multiple to Cellestis then I would have to say that a multiple of 30 is much closer to reality than the IE multiple of 18 to 20.

A multiple of 30, using this methodology would imply a value of a Cellestis share of between $4.69 and $4.99. However, because of the inherent inaccuracy of the FME methodology I would not make my decision based on the result of a FME valuation.

I hope that the above is a good start on our critique of the IE valuation. In subsequent posts we will be looking at the many other matters raised in the IE Valuation, including his DCF valuation.

In the Press

Accompanying the release of the Scheme booklet came a mild flurry of news items with Fairfax reporting that the independent report found the takeover offer was fair and reasonable and that Cellestis had

dismissed a group of shareholders opposed to a $341 million takeover bid as beating up ''dreams, suppositions and wild fantasies''.

Tony Radford was also quoted by Business Daily as saying

"The group has a certain disconnect with normal processes of valuation."

Qiagen have also taken the opportunity to weigh into the debate

“The views put forward by some retail shareholders are flawed and misleading."

Murdoch and Boardroom Radio have a video of CEO Tony Radford explaining the Scheme booklet. It is unfortunate that Tony Radford is unable to properly address the camera, which is unsettling to many of those who have viewed it.

Latest News

Dear fellow Cellestis shareholders,

This story continues to develop.

Communications.

The CSAG Team thank you for the literally hundreds of emails of support and queries that you have sent. We really appreciate your contact. It has been our aim to reply to each and every email. If we have inadvertently missed replying to any of you, we apologize. By all means please re-send any emails that we might have overlooked. It is very important that our communications with you are bi-directional.

If you have any friends that are Cellestis shareholders that have not yet registered their email addresses with us, please reach out to them and encourage them to register their email address HERE. We want every single shareholder to be both well informed about this matter and confident that they are not alone in being opposed to this opportunistic bid.

Don't forget that you can also catch up with our previous communications at our BLOG.

Numbers.

We offered the Cellestis Board the opportunity to inspect our numbers enabling them to be assured that we are not bluffing, that we do have the numbers to defeat this bid. They have taken us up on this offer and their representative has inspected our numbers. 

This means that Cellestis, Qiagen and the advisers to both are now fully aware that we do have the numbers to soundly defeat this lowball offer of $3.55 per share for our Company.

Australian Shareholders' Association.

The Australian Shareholders' Association (ASA) have noted our case, as detailed in the article written for "The Australian" newspaper by the Chief Executive of ASA, Vas Kolesnikoff. If you have not yet read this article you can do so HERE.

2011 Full Year Financials.

Because of the latest delay announced by Cellestis the vote on this Scheme will not take place until well after the end of the Financial Year. This means that the Company will have no choice but to release the Financial Year figures to us before the vote takes place. It is a requirement of the Scheme of Arrangement process that any material matters that occur after the Scheme Documents have been released must be provided to the shareholders. It is simply not possible that the financial figures cannot be considered a material matter.

As always, we urge you all to remain steadfast in your opposition to this takeover. The CSAG Team continues to work on this unwaveringly.

Vic  

Spokesperson 

CSAG


P.S. It seems that a small number of you have mistyped your email addresses when registering with CSAG. If you have registered and believe that you should be receiving our emails but are not, please drop us a line at cst.shareholders@gmail.com so that we can correct your records.

Biotech a small symptom of a larger malaise

SHAREHOLDER: Vas Kolesnikoff

From: The Australian June 09, 2011


I LOVE it when a shareholders action group contacts me. Not because it means there is trouble but because the shareholders are doing what they are supposed to be doing, and what fund managers already do.

Shareholders action groups comprise small individual fund managers who pool their shares behind a larger united voice in decision making. So I wonder why all these small individual fund manager shareholders don't join the Australian Shareholders' Association, while acknowledging some already have, because that's what the ASA is about and there is already a big action group in place, ready and waiting.

Cellestis is a great story and a great little biotech company. Its two founders, Tony Radford and James Rothel, deserve the glory for turning a small Australian tuberculosis diagnostic kit maker into a $350 million company, with regulatory approval for its product to be sold in some major markets like the US and Japan. This company can dream about following in the footsteps of CSL, Cochlear and Resmed.

The problem is Cellestis is now subject to a takeover offer from German company, QIAGEN. The founders want to accept the offer and cash in their chips. The company will be absorbed into something bigger where they can concentrate on science rather than management, ASX listing rules and all that other good stuff.

The shareholders want to stay with the founders, however, as they believe the offer price of $3.55 grossly undervalues the company's huge potential.

Shareholders are being asked to sell the company to offshore interests perhaps prematurely, before the company has had the chance to realise its potential and before shareholders have realised the value they believe is there.

The chairman, Ron Pitcher, notes that Cellestis's revenue growth will be accelerated as part of QIAGEN. However, this is cold comfort for shareholders who will lose this opportunity. Perhaps it also reinforces what a great deal this is for QIAGEN.

At present, a significant shareholding block -- mooted to be close to 40 per cent and growing -- will vote against the proposal.

The Cellestis takeover highlights a few pitfalls for all shareholders. Are the management and controlling shareholders of such companies conflicted in their desire to realise their wealth, rather than hold it on paper and continue to grow the company for all shareholders? Shouldn't they try to keep it in Australian hands, as seen with Cochlear, CSL and Resmed, at least a bit longer?

Management deserves the right to enjoy the fruits of their labour from the accumulated wealth of their shareholdings.

So how else can such founders sell down their significant holdings while allowing other shareholders to stay with the company? I would hope this avenue has been considered.

In this case, shareholders are not complaining about management. Just the opposite. But we can see the fine line in the argument for alignment of interests with all shareholders.

Vas Kolesnikoff is chief executive of the Australian Shareholders' Association

Another Delay.

Today, Cellestis have announced a further delay to their schedule for this proposed Scheme Of Arrangement.

The full announcement can be read HERE

The CSAG Team take this opportunity to assure all shareholders that we remain committed to achieving a better outcome for all shareholders than this $3.55 takeover offer by Qiagen NV. We will remain committed and active - no matter how long it takes.