Aug 14, 2007This article was originally published by RFID Update.
August 14, 2007—The corporate structure and relationship among Applied Digital, Digital Angel, and VeriChip has historically been confusing, but a merger between Applied Digital and Digital Angel announced last week may change that.
Until now, Applied Digital of Delray Beach, Florida, had majority ownership positions in VeriChip, also based in Delray Beach, and Digital Angel of St. Paul, Minnesota. Applied Digital was effectively a holding company, with revenues generated by the subsidiaries. VeriChip is the provider of its namesake human-implantable RFID chip; Digital Angel provides similar chipping technology but targeted at the livestock and pet markets. All three companies were publicly traded: Applied Digital (ADSX) and VeriChip (CHIP) on the Nasdaq, and Digital Angel (DOC) on the American Stock Exchange.
Last week Applied Digital and Digital Angel announced that they would effectively merge, with Applied Digital buying up the outstanding 45 percent of Digital Angel stock that it does not already own. The all-stock deal is valued at about $31 million. Digital Angel will no longer be traded on the American Stock Exchange, and the combined entity will be traded on the Nasdaq. A new CEO will be sought, and in the interim Digital Angel board member Barry M. Edelstein will serve as CEO and president.
The merger will result in a streamlined, more efficient company by eliminating overlapping overhead and processes. The company projects that over $2 million will be saved per year. "In a single transaction, we will create a financially stronger, more robust and better capitalized company, and substantially reduce overhead costs," commented Applied Digital CEO Michael Krawitz. The merger will also see facilitated technology transfer and renewed focus on core opportunities.
Part of the rationale for the merger appears to be eliminating the confusion that investors faced when considering investment in Digital Angel. "We also eliminate Applied Digital's majority ownership overhang position in Digital Angel, which has created uncertainty among investors and customers," Krawitz was quoted. According to Edelstein, "This transaction simplifies the capital structure ... and should make Digital Angel more attractive for investors."
The acquisition terms call for all Digital Angel stock to be exchanged for shares of Applied Digital at a rate of 1.4-to-1. This will have two effects. First, existing Applied Digital shareholders will become direct shareholders in Digital Angel. Second, existing Digital Angel shareholders will receive ownership in VeriChip, since Applied Digital is the majority owner.
Ultimately, the thing to remember is that the merger will make two companies of three. The combined Applied Digital/Digital Angel entity will continue as a manufacturer of pet and livestock RFID chipping solutions, as well as the majority owner in VeriChip. VeriChip itself will be largely unaffected and will continue as a subsidiary of the new entity.
Read the announcement from Applied Digital
