Teuza - A Fairchild Technology Venture Ltd. (TASE:TUZA) has exercised an option to sell 1.2 million shares in portfolio company Bioness Ltd. to Alfred Mann for $3.3 million. The sale reduces Teuza's stake in Bioness from 4.5% to 3%, and increases Mann's stake to 24.5%.
Bioness develops neuromodulation medical devices to help people with multiple sclerosis, strokes, cerebral palsy, traumatic brain injury and spinal cord injury to use their limbs. The company has three devices on the market: the H200 Hand Rehabilitation System, the L300 Foot Drop System, and the L300 Plus for Thigh Weakness.
Teuza also awarded Mann a two-year option to buy an additional 1.2 million Bioness shares at $2.67 per share.
Teuza co-CEO Avi Kerbs told "Globes", "This is a risk-free option for me. If the company value increases; we're in."
Teuza will see no immediate cash from the sale, as the proceeds will be given to Mann as a one-year loan at 3.7% interest. Part of the loan will be returned to Teuza as $50,000 in quarterly management fees, until it repaid in full.
The deal raises the question why Mann, a billionaire, needs a loan from Teuza. It is not because he lacks liquidity. A knowledgeable source told "Globes" that since the deal was for the sale of Bioness shares, the money should have originated from the company, but because Bioness needs cash, Teuza and Mann agreed to this structure.
If Bioness succeeds in increasing its cash flow, it will pay Teuza. If Bioness greatly increases its company value, it will want to buy back the shares. If that does not happen, Mann will repay the low-interest loan.
Teuza has $8.5 million in cash, which is sufficient for its needs, and it has no immediate for the money.
Sources also inform ''Globes'' that Teuza wants to reduce its Bioness stake due to disagreements with Bioness' American managers, and who are considering removing the company's Israeli operations. Teuza objects to this. The companies also disagree about Bioness' heavy expenditures, which hinder its ability to break even despite tens of millions of dollars in sales.
Kerbs declined to discuss the disputes with Bioness or the company's financial condition. "Mann asked to keep the door open for us to get back into Bioness. He's paying us the loan through consultancy fees, and he wants to keep us close. He doesn’t want Teuza to leave Bioness."
Mann founded Bioness in the US as the marketing arm of NESS, a Teuza portfolio company. The two companies were merged at a value of $75 million for NESS in cash and shares. The company is waiting for US Food and Drug Administration (FDA) approval of its pain treatment, which should boost its revenue.
Published by Globes [online], Israel business news - www.globes-online.com - on February 9, 2012
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