The company has been the subject of a recent activist campaign led by Ryan Morris of Meson Capital Partners. After acquiring an 8% position in the company, he replaced management and appointed himself executive chairman. After taking over the board, Morris attempted unsuccessfully to shop the company. The most likely reason for the lack of interest appears to be the announcement by the Centers for Medicare and Medicaid Services to subject INFU's pumps to a competitive bidding process.
In May, Morris sent a letter to the board expressing interest in putting a bid together to take the company private in May. The board agreed under the condition that Morris take a leave of absence as the executive chairman. Morris agreed, remaining on the board but stepping down from the executive chairman role.
On July 17, Morris sent another letter with a good faith indication of interest to take the company private at a price between $1.85 and $2.00. With the stock trading around $1.75, the gross returns are the following if the deal goes through at the end of the year:
| Deal Price | Return | Annualized |
| $1.85 | 5.7% | 13.4% |
| $2.00 | 14.3% | 35.3% |
A deal is still subject to due diligence, and receipt of third-party financing. The latter appears to be lined up, again subject to due diligence.
The deal looks to have a quite high probability of going through in one form or another. The shareholder base is relatively concentrated, and I think Morris likely knows where they stand. As was made public before the indicative offer, management has also recently adjusted their contracts to include change of control provisions providing for "cash award payments" in the event of a transaction involving greater than 50% of the stock. How convenient for them. The CEO and many of the board were recently appointed following Morris' gain in control, and I suspect they will also keep their jobs.
In any case, there's also reason to think that the deal could get done at a higher price. Morris purchased approximately 60% of his position at $2.25. To avoid the further appearance of conflicts of interest (recall that Morris is still on the board), I think it somewhat likely that the price either goes through at the high end of the range, or gets pushed to $2.25. In its letter responding to the offer, management stated that it "continues to believe that the value of the Company is above your proposed offer range of $1.85 to $2.00 per share." I expect Morris will counter with the competitive bid discussed above, but the incentives appear to be to get the deal done, and even the low range is reasonably attractive.
Worst case and the deal does not go through, the company does not appear to be overvalued. The rebid risk is real, but I'm willing to accept this given the other factors in play.
Disclosure: Long INFU
