Wednesday, August 11, 2010

ATEC

Spine Nation:

Yesterday, we posted a blog regarding the news about the on-going investigation by Kahn, Swick & Foti into AlphaTec Holdings LLC to determine whether it had violated federal securities laws by issuing false and misleading statements to its shareholders. Ironically, what transpired was a tete-a-tete between various commentators and of course the usual attack on TSB. TSB would not expect anything otherwise. It is easier to deflect your anger at the blog post or TSB, rather than address the issue at hand, have an intelligent discussion about the potential ramifications for ATEC, and of course the behavior of the Board of Directors. Obviously, accountability is a noun that doesn't exist within our industry.

It seems that Kahn, Swick & Foti are not the only law firm that has a special interest in ATEC. Jacobs & Associates is also investigating possible claims for violation of federal securities laws on behalf of purchasers of ATEC common stock. In one fell swoop, tens of millions of dollars in shareholder value was wiped out. In addition to KS&F and Jacobs & Associates, there is a third law firm that is spearheading its own investigation into these alleged claims. So how did ATEC get to this point.

On December 17th, 2009 the Company announced that it was going to acquire Scient'x, S.A. a company owned by Healthpoint Capital Partners and affiliates, Healthpoint Capital which also held 38% of the Company's shares, in an all stock transaction. Ironically, five of the nine ATEC directors are affiliated with Healthpoint Capital. On December 17, 2009, the Company disseminated an aggressive full year 2010 guidance stating that the Company anticipated annualized pro forma revenues of $220 million to $225 million. Shares rose 8% on this news. This guidance was influential in causing ATEC's shares to trade at high prices, so that ATEC could sell shares in a follow-on offering and so that Healthpoint Capital could sell off a substantial part of its shares in that same offering.

Upon closing the Scient'x acquisition, on April 12th ATEC announced a follow-on public offering whereas the Company would sell 8 million shares and Healthpoint Capital would sell 8 million shares. The offering was priced at $5.00. This offering allowed Healthpoint Capital to sell off a significant number of its AlphaTec shares.

On August 6th, the ATEC stock crashed. Why? It seems aggressive projections lacked a reasonable basis, in that they appear to have been based on unrealistic calculations as to the speed of integrating the Scient'x acquisition, the effect of negative pricing trends within the industry, and the ability to replace lost revenue when it divested its Asian distributor at the time of the Scient'x acquisition.

As TSB stated in an earlier post, it seems that negative industry pricing has become the mantra of every CEO within our industry. Yet, how difficult was the integration of Scient'x? We're not talking about a Styker/Howmedica sized integration. Didn't anyone at ATEC anticipate the effect of having to replace lost revenue when it divested its Asian distributor? TSB could understand executive management forecasting conservatively in a sluggish market, considering analysts' even lowered their expected guidance to single digits for the industry. Yet, such an aggressive number leaves many unanswered questions. Let's give ATEC the benefit of the doubt, unfortunately, everyone knows the old expression, "where there's smoke there's fire."

If you purchased ATEC stock between December 18, 2009 through August 5, 2010, and have a loss, whether or not you still hold shares, or if you bought in the April 2010 offering, or held ATEC shares prior to December 18, 2009, and still hold your shares and are interested in discussing you rights free of charge call Roy L. Jacobs at 888.884.4490 or e-mail Mr. Jacobs at rjacobs@jacobsclasslaw.com, or contact lewis.kahn@ksfcounsel.com, or call Mr. Kahn toll free at 866.467.1400 x-200.

7 comments:

  1. MM Perhaps you can post a good defense attorney for those idiots over at ATEC. Sounds like they may need one.

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  2. Let us put together the largest Qui Tam case. Need as many reps/distributors/corporate people we can get. Need those parts going into vets or medicare. Anyone, brother, sister, stepbrother working for the surgeon placing Alphatec equipment that is benefiting directly or indirectly. Lets smoke em out and get em running!

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  3. The lawsuits don't seem to have much merit to me if this is all they have to go on.

    Apparently the argument is that ATEC's projections based on the integration of Scient'x were unreasonable. Well, if the projections were unreasonable, then why did the industry analysts go along with the projections? These industry analysts, by the way, are financial experts in this field and, thus, should be about the most knowledgeable people around on how such an integration should work out. Thus, by definition, the analysts shouldn't have agreed with the projections if it was unreasonable to think the integration would work out as planned.

    Absent some further bad facts coming to light, the most likely thing that happened was that the integration just simply did not work out, whether due to poor leadership, unforeseen obstacles or otherwise. (Poor leadership, in and of itself, does not provide a basis for a lawsuit).

    Badly missed projections happen at companies from time to time and suck for everyone involved – see GM, Chrysler, Blockbuster, etc. as examples. But in no way does this necessarily mean that there were nefarious actions going on behind the scenes.

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  4. see my new blogspot:http://atecs.blogspot.com/

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  5. I'm sorry, but this should not be a big surprise. Remember, HPC tried to get Alphatec to acquire Scient'x a couple of years ago and it failed. Why? Board shot it down. The easiest way to get this done - take control of the board. Then you accept the information you want, do with it the way you will and finally get this brick moving. Remember HCP is not a venture capital company, they are an equity company. They live and die by the looks of their portfolio and books. Their investors can dump them pretty easy and their value quite quickly gets pretty ugly. HCP needed to unload Scient'x. The investment needed to reach for their dreams was way over the price any investor would risk in a shaky economy, and without it, they were "dead man walking".

    And, look at Alphatec a little closer at the time of the acquisition. Yes, the EBIT looked great, but look a little closer at the EBITA (public company, public information). Everything had to fall in place perfectly for this come off. Did Alphatec withhold information or do anything illegal? Don't think so, but they were not probably showing all the cards either. One learns in the process to provide all legal information required, and what is asked, but not everything you have.

    I expect this will go away. Alphatec will look kind of dumb for a while; it won't be the first time, or probably the last. DK is no idiot, but he will micromanage them into trouble again. Who will come out of this the best? Watch HCP get out of this without a scratch.

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  6. Does everyone think a group of class action attorneys are right? Their goals is to get a bazillion dollar settlement, take 35% and give all of the "victims" $0.002 per share. ATEC missed their number badly, but the entire market is down and they had some other extenuating circumstances (that they should have factored more accurately). The stock price drop of 50% doesn't reflect the value of the company and I will be buying some shares. They are still beating the overall spine market handily.

    As far as the insider sales, 4 directors sold 9.2M shares each on the exact same day. I don't think that is a very covert trade based on insider information. They had all been granted options recently and in a very coordinated move, sold a portion of those shares for a profit, maybe they even got their original investment back out (I hope so). But don't read too much into a missed number.

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  7. Does MM have a grudge with ATEC? Posting the lawyers and soliciting plaintiffs? Tsk Tsk

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