Melodiol Global Health Ltd (ASX:ME1) is moving to streamline its portfolio and expand its North American footprint through an asset sale with US-listed Panacea Life Science Holdings Inc.
The ASX-lister has inked a non-binding letter of intent that could bring in up to A$30 million if Melodiol divests two of its prominent business units: Sierra Sage Herbs, LLC (SSH) and Halucenex Life Sciences Inc.
The proposed deal also includes an additional US$15 million in earn-out clauses, which, if met, will provide additional value to Melodiol on top of its sizeable stake in the spinout vehicle.
Panacea’s business model complements Melodiol’s: the company specialises in the development, manufacturing, research and distribution of GMP-certified health and wellness and pet care products, chiefly those originating from hemp and CBD.
Panacea’s product suite.
By teaming up with Panacea, Melodiol believes it can unlock value from its early-stage SSH and Halucenex divisions, thereby strengthening its balance sheet and accelerating the drive to a cash-flow positive portfolio.
Pursuing financial agility
Melodiol CEO William Lay said the team was pleased to introduce the letter of intent and a move that stands to add “significant value” for Melodiol and Panacea.
“The provisional consideration terms reflect the significant upside potential of SSH and Halucenex, and the deal has been structured to allow both counterparties to leverage their respective strengths while sharing in the opportunity for future growth,” he explained.
“For Melodiol, the proposed transaction also provides the company with a material non-dilutive cash consideration at an important juncture in its growth phase.
“It follows a consistent period of record revenue growth across our continuing operations and presents the group with a strong strategic rationale to complete the transaction and deploy resources in pursuit of ongoing growth in top-line revenues and cash flow.”
The fine print
Subject to due diligence, Panacea stands to acquire SSH and Halucenex for US$20 million, divvied up a mix of cash and scrip.
Melodiol can expect to pocket US$2 million in cash once the deal closes, as well as US$3 million in Panacea stock (priced at the company’s 20-day volume-weighted average price).
The balance is upheld in milestone payment tranches based on revenue margins and sales targets during a three-year earn-out period.
Sydney-based Everblu Capital acted as Melodiol’s corporate advisor.
Ultimately, the ASX-lister believes selling its early-stage business units marks a strategic leap in its mission to achieve financial agility.
Melodiol said the move would decrease cash outflows and put the company on track to escalate sales and expedite profitability, as mirrored in its recent sales update.
Post-transaction, Melodiol will be Panacea's largest shareholder, amplifying its visibility in the North American market as it jostles for a Nasdaq listing.
Panacea is headquartered in Golden, Colorado, where it operates a 51,000-square-foot cGMP-certified facility.
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