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http://www.theaustralian.news.com.au/business/story/0,28124,24966751-5016575,00.html

Progen-Avexa merger all in the numbers

WITH close to $70 million sitting in the bank, is it any wonder that Progen Pharmaceuticals is having a tough time convincing shareholders to back a proposed merger with Avexa?

After all, many investors of the failed drug developer had been hoping to get back some money and run -- no doubt far, far away from the risky biotech sector.

Following one thwarted attempt at a boardroom coup earlier this month, there have been rumblings about certain investment bankers trying to build a stake in the biotech company in order to wind it up and return its entire capital to investors.

According to the Avexa-Progen merger documents, Progen has a cash-backing of between $1.10 and $1.15 a share, compared to its current share price of 87c.

However, a close look at Progen's accounts reveals that investors would be unlikely to get anywhere near that if the capital return option was pursued.

Although Progen had $76 million at the end of the financial year, it also had $7.3 million in balance-sheet liabilities. But what about contingent liabilities?

There's around $5 million in government research grants that would likely have to be repaid.

Furthermore, when Progen acquired US company CellGate in February last year, it committed to $US19.5 million in future milestone payments. A decision to wind up Progen would effectively strip CellGate's former shareholders of any chance they had of achieving the milestones and could trigger the early payment of the fees.

With that in mind, a quick back-of-the-envelope calculation suggests that the potential $1.10-$1.15-a-share cash-back could quickly erode to just 50c.

No wonder the Progen board reiterated its opinion on Friday that the Avexa merger, which includes a $20million buyback, was the best option for shareholders.