October 16, 2019

Reverse Mergers: Talk About a Corporate Makeover!

I’ve seen some pretty radical corporate makeovers involving public companies over the years. I once represented a environmental remediation company that shed its skin through an acquisition & got into the education business.  On another occasion, I worked with a company that started with a clinical research business & transitioned into a software business. Chances are, you’ve never heard of either of these companies, but there are plenty of household names that have shed their flagship business and become something completely different.

Still, by any measure, the reverse merger deal that privately held biopharma company Sonnet Therapeutics struck with publicly held Chanticleer Holdings has to be one for the books. You see, Sonnet develops targeted biologic therapeutics for cancer, while Chanticleer owns, well, “Hooters” (among other restaurant concepts).

What’s the rationale? Sonnet gets a Nasdaq listing, while Chanticleer gets a life preserver.  Its restaurant businesses have been struggling, and will be spun off from the combined entity along with an injection of cash. This excerpt from Chanticleer’s press release lays out the deal’s terms:

Immediately following the closing of the merger, the former Sonnet shareholders will hold approximately 94% of the outstanding shares of common stock of the combined company and the shareholders of Chanticleer prior to the merger will retain ownership of approximately 6% of the outstanding shares of Chanticleer. In addition, the spin-off entity will receive a five year warrant to purchase approximately 2% of the number of shares issued and outstanding of the Chanticleer at the time of completion of the merger at a purchase price of $0.01 per share.

Additionally, terms of the merger include a payment of $6,000,000 to Chanticleer from Sonnet, a portion of which is intended to repay certain of Chanticleer’s outstanding indebtedness in conjunction with a spin-off of all of the existing Chanticleer assets and liabilities. The balance of this payment will be retained by the spin-off entity for working capital and general corporate purposes.

Upon closing Chanticleer will change its name to Sonnet BioTherapeutics Holdings, Inc. and the existing Sonnet board & CEO will lead the combined company. Here’s a copy of the merger agreement.

John Jenkins