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A Luxembourg financial firm has agreed to buy all outstanding shares of Cavitation Technologies for $35 million in cash. The offer has an unusual condition attached: the same buyer must also close a simultaneous purchase of a private beverage company, and each deal is written so that neither can proceed without the other.
The buyer, European Guarantee Services S.à.r.l., is described in the August 14 agreement as a private financial and wealth management company based in Luxembourg. Under a concurrent agreement, it would pay $7 million in cash for Alchemy Beverages Inc., a privately held Delaware company in which Cavitation holds about 17% of outstanding common stock, according to the tender offer agreement filed with the SEC on August 19. The filing does not explain why a Luxembourg wealth-management firm wants to acquire a California water-treatment company, or what ties it to Alchemy beyond Cavitation's minority stake.
For holders of Cavitation shares, the deal opens at $0.108 a share — a figure stated in the agreement, arrived at by dividing the net proceeds after deducting the company's roughly $646,000 in combined debt and accrued liabilities from the $35 million price, across about 317 million shares outstanding. That number is not final. A revised price will be set 45 business days after the offer launches, based on however many shares are outstanding on that date. If warrants, convertible rights or a limited private placement that the agreement permits add shares before then, the same pool of cash gets divided across more of them.
The company's board unanimously recommended the offer, according to the August 17 press release filed with the SEC as Exhibit 99.1. No shareholder vote is required. Holders decide by choosing whether to tender their shares, and the offer must stay open long enough to give them at least 30 business days to review the final price once it is set.
Two conditions could prevent closing. At least 90% of outstanding shares must be tendered — below that threshold, the buyer has no obligation to proceed. And because European Guarantee Services is a foreign entity, the parties must submit the transaction for review by the Committee on Foreign Investment in the United States, the body that examines whether foreign acquisitions raise national-security concerns. If CFIUS takes adverse action, the deal cannot close.
The money to fund both purchases is to come from Bright Wealth Banking Consultant, a Dubai-based affiliate of the buyer, according to the agreement. The filing gives no explanation of why the Alchemy Beverages transaction is a condition of Cavitation's deal rather than a standalone arrangement — or what happens to Cavitation's 17% stake in Alchemy if, for any reason, only one of the two offers succeeds.