CEO: Chembio will go bankrupt, close if merger isn't approved
A Medford-based test maker may seek bankruptcy protection from its creditors, and possibly even shut down, if a proposed merger with a French firm isn’t completed, its CEO said.
Only 35% of the shares in Chembio Diagnostics Inc. had been tendered by the March 14 deadline for a proposed sale to Biosynex SA, a French test maker. The deal is valued at $17.2 million or 45 cents per share.
Chembio CEO Richard L. Eberly has announced a new deadline of March 28 at 6 p.m. for shareholders to offer their stock for sale to Biosynex.
Chembio “faces ongoing operational and financial challenges if it stays an independent company as a result of not enough shares being tendered in the offer [from Biosynex] and the transaction contemplated by the merger agreement not being consummated,” he said in a March 15 letter to shareholders that was filed with the U.S. Securities and Exchange Commission.
“We may be forced to pursue bankruptcy” when Chembio’s debt-financing agreement expires on Sept. 4, Eberly said.
He also said, “There is substantial doubt about [Chembio’s] ability to continue as a going concern” because it lost $22.4 million in the first nine months of 2022 on revenue of $39 million. The company last reported an annual profit — $500,000 — in 2013, according to the S&P Capital IQ database.
Chembio employs about 340 people. It manufactures and sells rapid diagnostic tests for infectious diseases such as HIV, syphilis, malaria, Zika and Ebola.
The company has struggled financially since summer 2020, when the U.S. Food and Drug Administration revoked an Emergency Use Authorization for a COVID-19 antibody test, saying inaccurate results were produced in some instances.
Eberly’s warning to shareholders "is unusual,” said Anoop Rai, a finance professor at Hofstra University's Frank G. Zarb School of Business.
“Something is stopping the remaining 65% of [Chembio] shareholders from selling their shares … This normally doesn’t take place,” he told Newsday. “A CEO is usually well-prepared and smooths everything out before presenting [the merger agreement] to the shareholders for their approval.”
Two law firms that specialize in shareholder-rights litigation have questioned the merger, saying Biosynex isn’t paying enough for Chembio.
Halper Sadeh LLC in Manhattan and Kahn Swick & Foti LLC in New Orleans are advertising for Chembio shareholders to contact them “if you believe that this transaction undervalues the company.”
Chembio’s stock has traded between 19 cents and $1.24 per share in the past year. It closed unchanged at 35 cents on Monday in trading on the NASDAQ stock market. That’s 10 cents per share lower than Biosynex’s offer.
Chembio’s largest shareholder is mutual fund giant Vanguard Group Inc., which owns 1.6 million shares, or 4% of the total outstanding shares, according to the S&P Capital IQ data.