SomaLogic’s plan to combine with Standard BioTools in a merger valued at more than $1 billion has hit a speed bump.
On Tuesday evening, SomaLogic shareholder Madryn Asset Management said that it had filed a preliminary proxy statement with the U.S. Securities and Exchange Commission so it may appeal to its fellow investors to vote against what it labeled as the “conflict-plagued and excessively dilutive” merger in an upcoming meeting.
The New York-based private equity firm, which holds about 4.2% of SomaLogic, also included a letter sent to other shareholders outlining its list of reasons to oppose the buyout.
The move comes about two months after SomaLogic and Standard unveiled their plans to merge. The all-stock deal, which is expected to close in the first quarter of 2024, would give the former’s investors a 57% stake in the combined company, while Standard shareholders would hold the remaining 43%.
Their aim is to create a “multi-omic technology leader” that would combine SomaLogic’s proteomics platform and partnerships across medtech and biopharma with Standard’s broad range of tools and technologies for life sciences companies.
At the time, the companies said the deal had already been unanimously approved by participating members from their boards of directors and that shareholders representing about 16% of Standard’s common stock and 1% of SomaLogic’s had “entered into voting agreements in support of the transaction.”
But other shareholders seemed to be against the deal from the start. In the week after the Oct. 4 merger announcement, SomaLogic’s stock plummeted more than 20%—from around $2.30 to an all-time low of $1.76—while Standard’s share price took an even deeper dive, from $2.70 the day before the announcement to $1.59 by the end of the next week, its lowest point since May.
In its letter to fellow shareholders, Madryn laid out its four key points of opposition to the merger.
The first argues that the terms of the transaction “drastically” undervalue SomaLogic. Though it would have originally valued each SomaLogic share at $3, the nose-diving stock price now brings that valuation to just $2.40 per share, offering a premium of only 4.3% over the company’s share price before the merger was announced—“an absurdly meager premium when taking into account the Company’s large cash position, platform and near-term opportunities,” per Madryn.
The investor went on to suggest not only that SomaLogic agreed to the transaction following a “confusing” series of negotiations, the details of which remain cloudy, but also that it is “rife with conflicts,” as some beneficiaries of the transaction are involved with both companies. The letter singled out Eli Casdin and Casdin Capital, which are shareholders in both SomaLogic and Standard, and for whom “a majority of the members of the SomaLogic transaction committee worked with or for.”
The third point of contention argues that the merger would pile “several layers of debt” onto SomaLogic shareholders. The company is currently cash-rich and debt-free, per the investor, but would take on $9.6 million of term debt, $55 million of convertible debt and $250 million of Series B preferred equity after the combination, and Madryn questioned why SomaLogic agreed to do so, despite earlier indications that it was “not comfortable” taking on such debts.
Finally, Madryn concluded, a merger isn’t even necessary for SomaLogic’s continued success: “If SomaLogic had a weak balance sheet, perhaps transacting would be necessary, but the Company is uniquely positioned with its strong, cash-rich balance sheet that we believe provides several years of runway to weather the current cycle’s headwinds,” it wrote in the letter, adding that several unnamed parties have expressed interest in investing in a standalone SomaLogic if necessary and noting that the company still stands to rake in a considerable revenue boost in the coming years as it launches a pilot with Illumina—which itself was recently the subject of a proxy fight.
Madryn promised its fellow shareholders that it’ll continue sending out information to support its arguments in the coming weeks—along with materials officially soliciting their votes to oppose the merger—ahead of a special stockholders meeting scheduled for Jan. 4. It also urged investors to share their concerns about the merger with the SomaLogic board, in hopes of stopping the company from “trying to cram through the Merger in a seemingly rushed manner over the holiday season.”
In separate statements sent to Fierce Medtech, both SomaLogic and Standard confirmed that the transaction remains on track to close early next year and affirmed, in Standard’s words, that it “presents a compelling value proposition for all shareholders.”
SomaLogic added, “Following a comprehensive review of strategic options with the assistance of independent financial and legal advisors, including discussions with nearly 20 parties, the SomaLogic Board determined that our merger with Standard BioTools is the most value maximizing path forward and best ensures the long-term success of our science and technology. The transaction will meaningfully expedite our path to scale and profitability and provides shareholders with the opportunity to participate in the long-term upside of the combined company, while eliminating exposure to the execution risk continuing as a standalone company.”