MIDAS SHARE TIPS UPDATE: Spectral MD investors at a crossroads

Midas recommended medical device specialist Spectral MD just over a month ago at 31 pence per share. On Tuesday, the Texas-based company announced a complex takeover deal, valuing its shares at around £1.01 each.

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

Spectral MD has developed a highly advanced tool that predicts whether wounds will heal on their own or require specialist help. The device, known as DeepView, has received praise from the US government, which noted its potential for burn victims. US agencies have provided nearly £100 million in research funding to Spectral over the past decade. A lucrative contract may be lurking in the near future.

Buoyed by federal enthusiasm for DeepView, Spectral’s headstrong CEO, Wensheng Fan, began adapting the device for use in diabetic foot ulcers.

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

Fan is diligently seeking funds and believes the answer lies in this unusual US takeover.

Under the terms of the deal, a shell company, Rosecliff Acquisition, will acquire Spectral MD in a transaction valued at $170 million (£135 million).

Spectral MD shares will be delisted from AIM and investors will be offered shares in a newly named company, Spectral AI, listed on the US Nasdaq stock exchange. Rosecliff was set up specifically to look for interesting acquisitions, so it won’t be running the company, 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 ​​current shares at around £1 each.

The company also plans to raise between $10 million and $30 million from U.S. investors to fund future growth.

Typically, shares in a takeover target rise to a price at or close to the offer price after an offer is announced. Spectral stocks have done no such thing. Some investors are baffled by the deal. Some are angry that the company is leaving the UK. Some have chosen to take profits now. And some are skeptical about the transaction, which is not expected to take place until sometime this summer. However, the company is optimistic.

Midas verdict: Fan’s decision to cancel Spectral’s UK listing and move to the US is disappointing. But the shares have underperformed since entering the London market, the terms of the Rosecliff deal look very attractive and the company is expected to go far.

Investors who bought for 31 pence last month will have to wait and see how things develop. There is even reason to buy a few shares now.

Whatever happens, investors can easily sell out before the move to the US is complete, or hang on to the stock once it moves to Nasdaq.

Traded on: GOAL Ticker: smd Contact: spectralmd.com or 001 972 499 4934