Psivida Shares Drop 20% -- Should Recover Soon (PSDV)

Here is an update to the piece I wrote about Psivida (PSDV) on July 6.

Yesterday, PSDV announced certain amendments to a $15m subordinated convertible that was completed in June 2005. Investors reacted angrily chopping the share price by 20%.

Most obvious was the change to the conversion price from AU98c to AU32c. Further changes included a pushing out of the repayment dates to July 2007 and January 2008, removal of a cash reserve requirement, and the ability to redeem the notes anytime from royalties or new raisings.

Bottom line is that PSDV paid quite heavily for the loosening of these financial restrictions.

My opinion on the stock remains unchanged as I think substantive news will drive the stock higher.

PSDV 1-yr chart:

Comments

[David Segelov:]

My view is that they did a "toxic convert" - see WSJ 25th August 2006 for examples of how damaging that can be for a company.

I like the PSDV technology but the Sandell Asset Mangement and its related Cayman entities effectively owns the company and not the shareholders. Shareholders of common equity in this sort of risky venture stand a great chance of being wiped out totally.

Management basically trashed the loyal shareholders. Worse than that the shareholders in the US cannot see the convert deal that PSDV entered into. I asked management a number of times to get a look at the deal so I could make an assessment. They were not forthcoming. Under the rules of a 20-F Filing shareholders dont seem to be entitled to view such a document. The Australian Exchange rules are even weaker.

This convert deal was terrfific for the hedge funds and lousy for the ordinary shareholder. Another example of how the little guy loses his money.

2006 Aug 25 10:32 AM

[David Segelov:]

Another bad deal for PSDV shareholders as the company uses its leading product as a SPV (Special Purpose Vehicle) to raise more funds.

After the Sandell deal and the SPV it is unclear that the ordinary shareholders have any claim on anything of value.

This is a sell.

2006 Nov 12 06:35 PM