SCHEDULE 13D: Activist Investor BML Partners Opposes Aadi Bioscience's Proposed PIPE Deal, Citing Shareholder Disregard

BML Investment Partners, holding a 9.9% stake in Aadi Bioscience, has publicly expressed strong opposition to the company's proposed Private Investment in Public Equity (PIPE) deal and strategic direction, advocating for a full company sale instead.

Summary

• BML Investment Partners, L.P. and Braden M. Leonard collectively own 2,435,000 shares of Aadi Bioscience, Inc. common stock, representing 9.9% of the total shares outstanding.
• The reporting persons acquired these shares for investment purposes and have sent a letter to Aadi's Board of Directors on January 30, 2025, stating their belief that proposed transactions announced on December 19 are not in shareholders' best interests.
• BML criticizes the Board for rejecting a prior offer from Kraken to buy the entire company, which would have valued the FYARRO business at $80 million and resulted in estimated proceeds of $4.38 to $4.74 per share to shareholders.
• Despite the winning bid for FYARRO being $100 million (an additional ~$0.73 per share), the Board chose to retain the proceeds and pursue a portfolio of risky pre-clinical assets.
• BML highlights that Aadi's financial advisor warned multiple times about low investor appetite for the proposed PIPE deal at a fair price, yet the Board proceeded.
• The Board is criticized for announcing the PIPE simultaneously with the FYARRO sale, which BML believes was done to 'hold the investor syndicate together' for the PIPE, rather than allowing the market to digest the asset sale first.
• BML estimates that insiders controlling over 30% of outstanding shares are participating in the proposed PIPE at $2.40 per share (less than half of the estimated dissolution value), creating a significant conflict of interest by allowing them to vote on a deal that materially damages other shareholders.
• BML urges shareholders to vote 'NO' on the PIPE deal and advocates for Aadi to consummate the FYARRO sale and stop there, arguing the ADC portfolio and PIPE are not in shareholders' best interests.
• BML is examining its options and intends to do everything in its power to stop the PIPE deal.

Sentiment

Score: 2

Explanation: The sentiment is overwhelmingly negative from the perspective of the reporting person (BML Investment Partners) regarding Aadi Bioscience's Board decisions and proposed transactions, particularly the PIPE deal, which is described as 'terrible' and 'destructive'.

Positives

• The winning bid for the FYARRO business was $100 million, which is $20 million higher than the original $80 million estimate, potentially adding approximately $0.73 per share to dissolution value estimates.
• A prior offer from Kraken to acquire the entire company would have yielded an estimated return north of 130% on the pre-deal stock price for shareholders.

Negatives

• The Board disregarded shareholder interests by not pursuing a full company sale that would have returned over $5 per share, opting instead for risky pre-clinical assets.
• The Board proceeded with a PIPE deal despite warnings from its financial advisor about low investor appetite and difficulty in pricing it near the estimated dissolution value.
• The PIPE deal is priced at $2.40 per share, which is roughly 53% below the low end of the estimated dissolution values ($4.38-$4.74 per share) from the Kraken offer.
• The proposed PIPE deal is expected to result in a 150% dilution for existing shareholders.
• The Board allowed insiders, who stand to benefit from the 'sweetheart' PIPE deal, to participate in the vote to approve it, creating a significant conflict of interest.
• The simultaneous announcement of the FYARRO sale and the PIPE deal prevented the market from properly valuing Aadi with $100 million in gross cash on its balance sheet before the PIPE pricing.

Risks

• The Board's decision to pursue risky pre-clinical assets instead of a full company sale or dissolution poses a risk to shareholder value.
• The proposed PIPE deal at a significantly discounted price and high dilution (150%) presents a substantial risk of value destruction for existing shareholders.
• The conflict of interest arising from insider participation in the PIPE vote could lead to an outcome detrimental to outside shareholders.
• Potential stockholder reaction and litigation risk related to the PIPE Financing are explicitly mentioned.
• The difficulty of holding the investor syndicate together for the PIPE Financing if the sale of the FYARRO business and the PIPE Financing were not signed and announced simultaneously.

Future Outlook

BML Investment Partners strongly advocates for Aadi Bioscience to complete the FYARRO sale and cease further strategic initiatives, specifically abandoning the proposed PIPE deal and the pursuit of pre-clinical assets. They believe this would maximize shareholder value by returning capital or selling the entire company, rather than diluting shareholders with a low-priced financing for risky ventures.

Management Comments

• "I am stunned at the total disregard for shareholders interest displayed by the Aadi Board, as outlined in the January 21, 2025 proxy statement."
• "Clearly, this is a Board and management team more concerned with keeping their jobs than maximizing shareholder value, and one that will go to any length to remain in power."
• "The financing underscores the confidence our investors have in both the potential of this portfolio and the strength of Aadis management team." (Quote from Aadi's December 22, 2024 press release, cited by BML as misleading)
• "Left unmentioned was the fact that none of these investors were remotely interested in participating at anything near a fair price."
• "The best and only sensible outcome here is for Aadi to consummate the FYARRO sale to Kraken in the most shareholder-friendly way possible – whether it be a sale of the entire company or an asset sale then stop there."
• "The ADC portfolio and the PIPE deal are clearly not in shareholders best interests."
• "If the PIPE even gets to a vote, shareholders should mark their ballots NO."

Industry Context

This document highlights a significant instance of shareholder activism within the biotechnology sector, where investors are increasingly scrutinizing corporate governance and capital allocation decisions, especially concerning M&A and financing activities. The debate between maximizing immediate shareholder returns through asset sales or full company sales versus pursuing long-term, high-risk pre-clinical development is a common tension in biotech, particularly for companies with a single approved product or early-stage pipelines. BML's stance reflects a growing investor demand for clear value realization and a critical view of dilutive financing rounds that do not appear to be at fair market value.

Comparison to Industry Standards

• The Board's decision to pursue a PIPE deal at a significant discount (53% below estimated dissolution value) despite warnings from its financial advisor about low investor appetite deviates from best practices for capital raises, which typically aim to secure financing at the most favorable terms possible.
• Allowing insiders who benefit from a discounted PIPE deal to vote on its approval raises serious corporate governance concerns, potentially violating fiduciary duties to all shareholders and falling short of standards for independent board oversight seen in well-governed public companies.
• The simultaneous announcement of a significant asset sale ($100 million for FYARRO) and a highly dilutive PIPE deal is criticized as a poor strategic communication, contrasting with standard market practices where positive news (asset sale) is often allowed to be digested before subsequent financing announcements to optimize valuation.
• The rejection of a full company sale offer (Kraken's offer for over $5/share) in favor of retaining proceeds for risky pre-clinical assets, particularly when the company's financial advisor noted difficulty in pricing the PIPE due to the preclinical stage of assets, suggests a potential misalignment with shareholder value maximization compared to industry peers who might prioritize clear value realization.

Corporate Governance

Legal Proceedings

• BML states it is 'carefully examining its options' and 'will do everything in its power to stop one of the worst and most destructive PIPE deals its ever seen', implying potential legal action.
• The document mentions 'potential stockholder reaction and litigation risk related to the PIPE Financing' as a matter deliberated by the PIPE Pricing Committee.

Related Party Transactions

• Insiders who control over 30% of currently outstanding shares are participating in the proposed PIPE deal at a price of $2.40 per share, which BML describes as a 'sweetheart PIPE deal' and a 'massive conflict of interest'.

Stakeholder Impact

• **Shareholders**: Expected to face significant dilution (150%) and value destruction due to the low-priced PIPE deal. Existing shareholders' interests are perceived as being disregarded by the Board.
• **Management/Board**: Under intense scrutiny and criticism from a significant shareholder, potentially facing challenges to their positions and strategic decisions.
• **Potential Investors (in PIPE)**: Benefit from acquiring shares at a significant discount ($2.40 per share) compared to estimated dissolution value, potentially at the expense of existing shareholders.
• **Employees**: While not directly mentioned, strategic shifts and financial instability can indirectly impact employee morale and job security.

Next Steps

• Shareholders are urged by BML to vote 'NO' on the proposed PIPE deal.
• BML Investment Partners is examining its options and intends to take all possible actions to stop the PIPE deal.
• Aadi Bioscience is expected to proceed with the FYARRO sale to Kraken.
• Aadi Bioscience will likely hold a shareholder vote on the proposed PIPE financing and License Agreement.

Key Dates

Recommendation

Keywords

Aadi Bioscience, BML Investment Partners, Schedule 13D, SEC filing, Shareholder activism, PIPE financing, Private Investment in Public Equity, FYARRO sale, Asset divestiture, Corporate governance, Shareholder value, Dilution, Biotechnology, Pharmaceuticals, Oncology, Pre-clinical assets, Conflict of interest