Vapor Corp. (NASDAQ:VPCO) has just announced the signing of a definitive agreement to merge with Vaporin, Inc. (OTCQB:VAPOD). Vaporin is a distributor and marketer of vaporizers, tanks, mods and e-liquid products. As part of this deal, Vapor will be the surviving entity. At the effective time of the merger, all issued and outstanding shares of Vaporin common stock will be converted into the right to receive the number of shares of Vapor common stock. Former Vaporin stockholders will collectively hold around 45% of the issued and outstanding shares of Vapor common stock immediately following consummation of the merger. The merger will close in the first half of 2015. Some important closing conditions for the company include a new $3.5 million equity financing. This has to be placed into escrow, with the only condition to the release of these funds from escrow to Vapor being the closing of the merger with Vaporin. Another important condition is that Vapor must have also received commitments for financing of up to $25 million. It should be noted that either Vapor or Vaporin may terminate the merger agreement if the conditions to closing have not been satisfied by May 14, 2015.
When I very recently initiated coverage on Vapor Corp., I very clearly asked the question: "Is there any value here?" After covering growing sales, but declining performance, I concluded that the company really was not investable. That said, it had made traders bundles. With that being said, I stated in the article that "see [VPCO] moving higher if the merger goes through and sales increase into 2015. If not, this one could be on its way to under a buck." I thought the merger would be happening, and thus far it is on track.
This news is definitely bullish for shareholders. I was very clear that the company pretty much needs this merger in order to survive, despite the growing popularity of e-cigarettes and vapor products. Vapor Corp. still remains at the forefront of this growing industry. I think shareholders should rejoice that this merger is proceeding. As the company joins with Vaporin, it should lead to growing sales and a much stronger infrastructure and product pipeline. However, the political risks are also substantial. Right now, there are few e-cig regulations and this will change for political or fiscal gain by municipalities. The New York State and more specifically, New York City, is a likely candidate for the first to implement new regulations, as well as markets in California and Massachusetts. In fact, the New York State has just passed new regulations that will impact VPCO. It has banned the sale of liquid nicotine to minors and requires childproof containers, something that will directly be a cost to the industry. Further, competition remains strong. While the present news is definitely bullish, I think anyone with gains should use the news to take a profit. There is just too much risk here.
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