By The Capitolist From Seeking Alpha

Summary

It appears that Concordia’s CEO has moved his shares to a Cayman Islands based corporation.

The timing of the transfer is concerning and warrants some explanation.

The disclosure rules surrounding Cayman Based corporations may not be congruent with the expectations of North American shareholders.

The press release last night was short on disclosure considering these concerns.

Last night Concordia International (NASDAQ:CXRX) issued a press release that the CEO and Chairman had sold 505,000 shares due to a margin call (just under 25% of his total holdings in the corporation). The release did point out that the CEO currently retained over 1.6 million shares it did not contain any details about the sale price or timing of the sale – nor did it provide transparency concerning the status of the remaining shares. Given the considerable controversy surrounding the company we expected more transparency around such a material event. The release did raise a substantial point of interest to us, which we implore the Board of Directors to opine upon (per the release management has self imposed a blackout period – thus we have not contacted the company as they would be unable to speak with us due to said blackout period):

“The shares were pledged to secure loans made to Mr. Thompson, and the sales terms were agreed upon, prior to the Company’s April 21, 2016 announcement that it had formed a Special Committee to evaluate strategic alternatives.”

To understand our concerns we present the following timeline:

On March 14th, 2016 the Cyaman Islands Gazette (page 441) posted the formation of “2496544 ONTARIO LTD.”

“Notice is hereby given pursuant to Section 205 of the Companies Law (2013 Revision) whereby the Company listed below previously registered in Canada is now Registered in the Cayman Islands on the effective 25 February 2016. 2496544 ONTARIO LTD.”

On March 31st, 2016 the “Marchés de valeurs et des instruments dérivés” (page 468) posted that the CEO of Concordia International had transferred 100% of holdings into “2496544 ONTARIO LTD.”

On April 21st, 2016 rumors fly that Blackstone is a potential bidder for CXRX. After market close we learn of the formation of a “special committee to evaluate strategic alternatives.”

Predictably the Stock reacts violently to the upside

Of course by June 2nd, 2016 the WSJ reports that, “Blackstone, Carlyle Depart Concordia Healthcare’s Sale Process”.

Recap:

March 14th, 2016 2496544 ONTARIO LTD. was registered in the Cayman Islands (previously in Canada)
March 31st, 2016 the CEO of CXRX transferred 100% of his shares into 2466544 ONTARIO LTD.
April 21st, 2016 a rumor was released that Blackstone was considering a bid for CXRX
August 22nd, 2016 the company announces that the CEO is forced to sell 505,000 shares due to a margin call for a loan that was established before the formation of the “strategic Committee” (formed April 21st, 2016 after market close)
Our Questions For The Board of Directors:

Did the CEO transfer over 2M shares of CXRX into Cayman Islands corporation 2496522 ONTARIO LTD., and if so, what is the status of the remaining ~1.6m shares (i.e. are they also pledged as collateral for a loan agreement)?
What assurances can you provide that the stock sale reporting standards North American investors are accustomed to are being upheld by the Cayman Islands corporation 2496522 ONTARIO LTD.?
Can you assure shareholders that Cayman Islands corporation 2496544 ONTARIO LTD. currently holds the remaining 1.6m shares free and clear of any loans – and that at no time did the corporation secure a short position against the shares being held (effectively netting the ownership out as natural or constituting a sale of shares under normal circumstances)?
What is the purpose of Cayman Islands corporation 2496522 ONTARIO LTD. ?
Going forward will any additional stock/options grants be allowed to be transferred into Cayman Islands corporation 2486522 ONTARIO LTD. ?
Disclosure: I am/we are short CXRX.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am/we are short CXRX. All information for this article was derived from publicly available information. Investors are encouraged to conduct their own due diligence into these factors. Additional disclosure: This article represents the opinion of the author as of the date of this article. The information set forth in this article does not constitute a recommendation to buy or sell any security. This article contains certain “forward-looking statements,” which may be identified by the use of such words as “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential,” “outlook,” “forecast,” “plan” and other similar terms. All are subject to various factors, any or all of which could cause actual events to differ materially from projected events. This article is based upon information reasonably available to the author and obtained from sources the author believes to be reliable; however, such information and sources cannot be guaranteed as to their accuracy or completeness. The author makes no representation as to the accuracy or completeness of the information set forth in this article and undertakes no duty to update its contents. The author may also cover his/her short position at any point in time without providing notice. The author encourages all readers to do their own due diligence.

For more on this story go to: http://seekingalpha.com/article/4001486-concordia-board-members-please-clarify-ceos-shares-held