Professional Diversity Network Inc. (NASDAQ: IPDN) has set for itself some growth targets that cannot be funded by its existing cash. The company also seems to be less interested in borrowing cash, although its balance sheet had only $0.45 million in total debt at the end of 1Q2016. As such, the board has decided to surrender a controlling stake in IPDN to a group of investors as part of the efforts to raise the required funds to support investment in future growth.
Professional Diversity Network Inc. (NASDAQ: IPDN) said that it has invited a private firm called Cosmic Forward Limited, based in Seychelles and owned by a group of Chinese investors, to become its controlling shareholder. The firm is set to invest about $20.5 million in IPDN, which will give it a 51% stake in the professional network company.
Though, net proceeds to IPDN from the transaction will be about $17.5 million.
What’s happening with Professional Diversity Network Inc. (NASDAQ: IPDN)?
Professional Diversity Network Inc. (NASDAQ: IPDN) will issue new shares of its common stock to Cosmic Forward at the price of $1.20 apiece. That indicates a 126% premium over the closing price last Friday. Besides acquiring common shares directly from IPDN, Cosmic Forward will also run a partial tender offer to acquire more shares of IPDN from the public. The tender off is expected to bring in 2.5 million shares.
But in the event that the tender offer fails to yield the 2.5 million shares required, Cosmic Forward will have the option to return to the market to purchase more shares of IPDN from public investors.
The idea of new shares being issued to Cosmic Forward and the firm running a mini tender offer is designed to give it 51% ownership of IPDN’s common stock. The tender offer has a purchase price of $1.20 per share.
So what next after the transaction?
The transaction is expected to significantly boost Professional Diversity Network Inc. (NASDAQ: IPDN)’s cash position. The funds coming from surrendering controlling stake to Cosmic Forward will enable IPDN to go ahead with the execution of its business plan, which include expansion into China.
The company has identified an opportunity in China’s professional network market given the rapid expansion of the country’s middleclass citizens.
The transaction is expected to close in 4Q2016. Looking at the market reaction to the news, investors seemed to like the deal.