MIDAS SHARE TIPS UPDATE: Spectral MD investors at a crossroads

Innovation: The DeepView device has won plaudits from the US government

Midas recommended medical device specialist Spectral MD little more than a month ago, at 31p a share. On Tuesday, the Texas-based company announced a complex takeover deal, valuing the shares at about £1.01 apiece.

The stock shot up to 64p on the news but closed on Friday at just 44p. What should shareholders do?

Spectral MD has developed a highly sophisticated tool that predicts whether wounds will heal on their own or require specialist help. Known as DeepView, the device has won plaudits from the US government, which spotted its potential for burns victims. US agencies have provided almost £100 million of research funding to Spectral over the past ten years. A lucrative contract may well be on the cards in the near future too.

Buoyed by federal enthusiasm for DeepView, Spectral’s idiosyncratic chief executive, Wensheng Fan, began adapting the device for use on diabetic foot ulcers too.

These ulcers affect millions of diabetics, so the potential market is huge and Fan hopes to gain regulatory approval in the next couple of years. However, Spectral needs money to achieve commercial success.

Fan has been eagerly searching for funds and believes the answer lies in this unusual American takeover.

Under the terms of this deal, a shell company, Rosecliff Acquisition, will take over Spectral MD in a transaction with an estimated value of $170 million (£135 million).

Spectral MD shares will be delisted from AIM and investors will be offered stock in a newly named firm, Spectral AI, listed on the US Nasdaq exchange. Rosecliff was formed specifically to look for interesting acquisitions, so it will not run the business, leaving that to the existing management team under Fan. Investors are expected to receive one new share, worth $10, for every eight they hold – which values the current shares at about £1 each.

The company also intends to raise between $10 million and $30 million from US investors to fund future growth.

Normally, shares in a takeover target surge to a price at or close to the offer price after a bid is announced. Spectral shares have done no such thing. Some investors are perplexed by the deal. Some are cross that the firm is leaving the UK. Some have chosen to take profits now. And some are sceptical about the transaction, which is not expected to take place until some time over the summer. The company is optimistic, however.

Midas verdict: Fan’s decision to cancel Spectral’s UK listing and move it to the US is disappointing. But the shares have underperformed since joining the London market, the terms of the Rosecliff deal seem highly attractive and the business is expected to go far. 

Investors who bought at 31p last month should sit tight and await developments. There is even a case for buying a few shares now. 

Whatever happens, investors can easily sell out before the US move completes, or stick with the stock once it moves to Nasdaq.

Traded on: AIM Ticker: SMD Contact: spectralmd.com or 001 972 499 4934

This post first appeared on Dailymail.co.uk