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Yes, there is no doubt the CSAG team have acted extremely oddly in the end, after their admirable work throughout.

 

If they were pressured into falling over for seeming to recommend a "no" vote, then how can Rog. post the following on his site??????

 

Update: a new deal has been successfully negotiated and shareholders are now encouraged to vote for the Scheme.

 

 

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Hi Puzzled, I agree with your point, the company has been conserving cash and under spending on R&D and marketing.

 

The problem with valuing CST if you remember the CSAG spreadsheet, is that everyone assumed the rapid increase in sales and market share without cranking up the increase in marketing to get there. And so like for like, profit is not as strong as we thought it was going to be because we all underestimated the increase in costs required to drive growth.

 

And R&D was really just going to be a defensive measure to protect patents. ie it doesn't increase sales, just stops competitors. We didn't have competitve pressure in our models anyway, so that spend also reduces profit.

 

But essentially I agree with you, there would have to be a ramp up of marketing spend.

 

 

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With all respect, I hope those shareholders that blindly followed the completely baseless recommendation from CSAG to accept the revised offer will now reconsider that choice and return their votes to AGAINST prior to the 1 August deadline.

 

D'Lids I have the greatest respect for you but frankly I am amazed by some of your comments today.

 

The problem with valuing CST if you remember the CSAG spreadsheet, is that everyone assumed the rapid increase in sales and market share without cranking up the increase in marketing to get there. And so like for like, profit is not as strong as we thought it was going to be because we all underestimated the increase in costs required to drive growth.

 

I don't know what numbers you plugged into your spreadsheet. You could get it to come up with anything if you gamed the assumptions sufficiently. I do know that as a proportion of total revenue the sales and marketing spend has been declining over recent years. If such a decline in spend results in poor growth rates like 35 to 40% per annum then I'm quite comfortable with that, and this current situation certainly still indicates to me a value per share that exceeds $3.80 by a healthy margin. Now I know that the directors have been bleating about all the low hanging fruit having been picked and new customers will get harder to acquire from this point onwards, and there may well be some truth to these statements. However, you have to remember that with a product like QFT, the customers are very 'sticky'. They don't really have a superior product to go to, so as long as we continue to provide a superior product at a reasonable price, we are likely to retain them. This means that the acquisition of new customers may require some effort and expenditure in the sales and marketing department, but very little once they are 'on board'. This means it is quite logical for the sales and marketing spend to decline as a proportion of total revenue over time. Money only needs to be spent on growth, not retention of customers. And remember, Qiagen have astutely observed that much of the growth in tests may be generated by existing customers themselves (ie their own market expanding). This costs us nothing. The rate of decline in expenditure on sales and marketing will of course depend on the calibre of our managers. I'll come back to this.

 

And R&D was really just going to be a defensive measure to protect patents. ie it doesn't increase sales, just stops competitors. We didn't have competitve pressure in our models anyway, so that spend also reduces profit.

 

Again, with all due respect: Crap! Lyme disease, cancer, autoimmune disease... these applications for the QFT technology have nothing to do with protecting our TB product patents. They do however represent significant future growth opportunities for our company and the lack of a more aggressive approach in developing them is, in my opinion, indefensible. Again, a new team with a superior calibre of management could quickly resolve this shortcoming.

 

Now to the issue of management. I think we all know that this is an extraordinary business. Many of us have been owners of this company for as long as 10 years. I sense amongst many holders a profound disappointment in the recent performance of our management team, and in particular the failure on the part of the board to acknowledge their own limitations and plan for a management transition at the appropriate time. I suspect that this has led many shareholders to capitulate and accept the revised offer. Personally, I think this is a foolish reason to sell. CSAG (specifically Rog - whom I also respect a great deal) essentially suggested a couple of scenarios:

a) the Board are in the best position to understand the business and are acting in the best interests of shareholders - so vote to accept the Qiagen offer; or

b) the Board are not in the best position to understand the business and/or are not acting in the best interests of shareholders - in which case we should vote to accept anyway because we want nothing to do with such a management team.

 

It's good logic, but it ignores option c). Option c) is basically the same as option b), but instead of selling the business for less than it is worth to solve the problem, you retain the business (by voting AGAINST) and solve the problem by replacing the existing Board. It is after all our company, not the Board's. They work for us and if they have failed to perform to our expectations then they should rightly expect to be replaced by someone who can perform to our expectations.

 

I am not suggesting that this option is without risk. There is a great deal of risk in replacing the management team. However, if you accept the premise laid out in option b) you will recognise that the downside risk is relatively limited, assuming you are prepared to find and appropriately recompense persons competent to run the business (it's a big world - they are out there). There is also the issue of ownership by the current management, however it is not a majority ownership and so should not affect the outcome of a smooth transition. In any event, the current owners on the Board have indicated their preference to sell at this time anyway. Perhaps they should speak to Qiagen (or Centaurus?) about doing just that.

 

I vote for option c) and will vote AGAINST the revised offer. I encourage others to do the same.

 

 

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With all respect, I hope those shareholders that blindly followed the completely baseless recommendation from CSAG to accept the revised offer will now reconsider that choice and return their votes to AGAINST prior to the 1 August deadline.

 

Keep in mind the ever increasing Australian dollar and its effect on the bottom line. Might also be useful to think about just who will be running the company post a " No " vote , and just how the management will be changed if they decide they want to stay.

 

And no, IP, you haven't shown respect.

 

Cheers

J

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IP, that's a solid over reaction to a simple post. All I said was that costs would go up in the short term. You are right that costs to sales have been declining while sales have grown strongly. Maybe that's because there's a few large institutions that have ordered big quantities of tests, I don't know, but it's reasonable to assume that they will get smaller and harder rather than easier from here. So put costs to sales ratios back up again.

 

R&D for new diseases. I agree it should be done. But isn't that what I said to Puzzled? They've conserved cash to the detriment of R&D. But if they spend it now they do it to the detriment of NPAT and dividends to shareholders. So cash out now, value much later. Hurts valuation.

 

R&D to protect patent. I stand by that statement too, cash out the door today to protect the market. That's a straight out cost that I hadn't thought of before.

 

All up not a dramatic change, and not new from me either, I've said this before. It just caused me to reduce my forecasts a bit. I still reckon it's worth well above the offer price, somewhere around $4.50. But $4.50 aint gonna happen for years if this gets rolled by a NO vote. You can hang in there, I'm not. I don't like your option C.

 

And thanks J for your support. And your point on the AUD is not lost on the argument either.

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Been away, sorry if this has already been posted.

 

Dr_Dazmo

 

Mayo Clinic Adds Diagnostic Exam to Better Understand TB Test Results (Minnesota, United States)MedCity News, http://www.medcitynews.com, July 18, 2011, by Arundhati Parmar

 

Mayo Medical Laboratories is adding a new TB test that will help physicians better determine the kind of TB afflicting patients. Mayo licensed the diagnostic test from GermanyÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Qiagen, a provider of sample and assay technologies. The license expands on what is currently available in terms of TB testing from Mayo. Currently, tests are done using a US Food and Drug Administration-approved method, which allows physicians to determine whether the patient is infected with Mycobacterium tuberculosis, the bacteria that most commonly causes TB. The technology Mayo Medical Laboratories acquired will get more specific on which species is causing the patientÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s disease, stated Nancy Wengenack, director of the Mycobacteriology Laboratory in Mayo ClinicÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s Department of Laboratory Medicine and Pathology. Since 1993, the rate of TB has been falling in the United States, but it continues to be one of the worldÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s deadliest diseases, according to the Centers for Disease Control and Prevention. One third of the global population is estimated to be infected with the bacteria.

 

 

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The arrogance is breathtaking. First the 2qtr conference call, now this...and the vote hasn't even taken place. You would expect them to talk positively on the potential acquisition but this is getting ridiculous. It's like they're trying to organise a revolt.
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They think that the deal is done but these communications point to the fact that Qiagen wants very keenly what Cellestis has.

 

Further, I think that it indicates that if the SOA failed they wouldn't walk away.

 

With Centaurus now a large shareholder, along with R&R and others, it shouldn't be too difficult for Qiagen to acquire the company in the usual way - by dealing with the market. But they would have to pay more than planned.

 

Or have too many shareholders lost the will to fight for a better deal?

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