The board of MEI Pharma (US:MEIP), a San Diego-based oncology company, is under fire from prominent shareholders who argue that a proposed merger with Infinity Pharmaceuticals (US:INFI) undervalues the firm.

The shareholders – Cable Car Capital and Anson Funds, which own a combined 14.8% of MEIP stock – have threatened to withdraw their acquisition offer if it is not accepted before the upcoming special stockholders meeting.

The battle could not have come at a worse time for the C-suite at MEI Pharma, with recent previously planned executive changes, including the departure of CEO Daniel Gold, as well as turnover in the CFO’s office.

Earlier this year, MEI Pharma announced plans to merge with Infinity Pharmaceuticals. The move, initially announced on Feb. 23, has seen a series of dramatic twists. On May 30, Anson Funds and Cable Car Capital launched their takeover bid for MEI Pharma, offering $8 per share plus a contingent value right.

Fintel’s consensus target price of $28.56 tells us that most analysts’ think the stock is valued more than three times the cash value of the offer.

Destroying Value

The critics argue that the proposed merger with Infinity would result in further value destruction. They have accused the MEI Pharma board of a “clear-cut breach of duty of care,” having failed to act in the shareholders’ best interest.

On June 27, the dissenting parties released a joint statement expressing their concerns. “The Board has forsaken its duty to act in the best interests of stockholders,” the statement read. It went on to criticize new employment agreements that seemed designed to circumvent the upcoming vote on the merger.

Later that day, MEI Pharma issued a response, dismissing the criticisms and restating their belief in the merger’s potential upside. The board encouraged shareholders not to be swayed by the negative press release from Anson and Cable Car, maintaining that the merger with Infinity Pharmaceuticals will create a diversified pipeline of three clinical-stage development programs.

Anson Funds, a privately held alternative asset manager with $1.6 billion in assets, and Cable Car Capital, a San Francisco-based investment adviser specializing in deep value and special situation securities, believe the merger undervalues MEI Pharma.

Their statement underscored a willingness to acquire all shares of MEI Pharma not owned by them for not less than $8.00 per share, plus a contingent value right. However, they have warned that the acquisition proposal will be withdrawn if not accepted before the July 14th stockholders meeting.

Cash Flow Declines

MEI Pharma ended 2022 with robust financial health, boasting a cash reserve of around $100 million expected to fund operations through mid-2025. However, if the merger falls through, Infinity Pharmaceuticals, which ended 2022 with $38 million in cash, might have to consider bankruptcy or dissolution proceedings.

A chart and table from Fintel’s financial metrics and ratios page for MEIP shows the growing negative cash flows over the course of 2021 through to the most recent quarter.

MEI Pharma has multiple clinical trials in the pipeline, including a Phase II study of Keytruda and a Phase Ib study of voruciclib, a CDK9 inhibitor.

This article originally appeared on Fintel

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