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More rebellion at Meldex

Created:
17 July 2008
Written by:
Richard Hemming

Meldex's shares have bounced 43 per cent in the past two days aided by the announcement today that disgruntled chief development officer Steve Martin has made an approach to its board.

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A person familiar with the situation, who spoke to the IC on condition of anonymity, says that Mr Martin is dissatisfied with the direction of the company under chairman (and co-founder of Shire) Jim Murray and chief executive Richard Trevillion.

The move comes at a time when Meldex's share price has fallen over 40 per cent in the past three months and at 46p is below half its 12 month high in December last year of 94p. Not only this, but management and the board received a stinging rebuke when shareholders denied its request to issue more shares at a fiery annual general meeting on 26 June. But more than this, it signifies a significant split within Meldex.

"The company is divided into technology people and retail people," says the person.

Those like Steve Martin believe the solution for the company's woes lies in developing its existing products, with its core polymer delivery technology, called X-gel. Essentially, this technology allows liquid to be turned into pills.

The other camp believes that Meldex should utilise the pan-European distribution network it acquired with the purchase of Melbrosin last year, and buy low-cost (meaning old) over-the-counter products to fill it with. This strategy involves frequent merger and acquisition activity, and is very much the direction Meldex is taking under Jim Murray and Richard Trevillion.

Mr Martin may appear to have the upper hand, as shareholders blocked further large-scale share issuance at the annual meeting. However that same meeting also approved the reappointment of Jim Murray and Richard Trevillion.

IC VIEW:

Sell

Can Mr Martin get enough money and shareholder support to pull the takeover off? It would appear unlikely. He'd need at least £100m. And US merger and acquisition specialist Houlihan Lokey has already spent four months traipsing around the world looking for a buyer for Meldex, apparently without success. If his bid fails, the company is effectively in limbo. Shareholders are better off out of it. At 45p, sell.

Previous IC View: Fairly priced, 26p, 1 July 2008

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