Roka Bioscience Inc (NASDAQ:ROKA) Is A Special Situation Trade

Roka Bioscience Inc (NASDAQ:ROKA) is an odd one at the moment. The company announced a couple of months ago that it intended to liquidate itself and sell all of its asset to another entity as part of a liquidation plan and – immediately subsequent to the announcement – started to decline in value.From around $2.30 a share preannouncement, Roka fell to early October lows of less than $0.67 a share – a more than 60% decline across a 6 week or so period. Over the last couple of weeks, however, things have started to pick up. Roka rose to mid-month October highs of $2.20 a share, regaining the vast majority of its lost capitalization, before falling to current levels in and around $1.14.So what's happening?Well, the latest development is rooted in a special shareholder's meeting that took place on October 26 and that – as per the report detailing the event – has basically served to green light the liquidation. There were four proposals up for vote at the meeting – one to adopt the Asset Purchase Agreement, a second to approve the winding up and liquidation of the company pursuant to the terms of what's called the Plan of Complete Liquidation, a third to decrease the number of authorized shares of common stock and a fourth to approve a potential adjournment of the meeting if necessary. ROKA Daily ChartAll four passed by an overwhelming majority meaning that – in the absence of anything unforeseen – the deal should close very near term.As a brief overview of the structure of the transaction, Roka is selling everything (assets, accounts receivable, inventory, the lot) to an entity called Rokabio, Inc., which is a newly formed, wholly-owned subsidiary of Institute for Environmental Health, Inc. (IEH). IEH will pay $17.5 million to Roka and the latter will provide transition services to the former until the end of this year (and perhaps a little longer, depending on how long things take to close).And what's in this for shareholders?Well, here's where things get a little interesting. Right now, Roka is trading at the above-mentioned market capitalization of a little over $5.8 million, based on the circa 5 million shares outstanding on the books. This is, in turn, based on a share price of $1.13 a share.If the company is getting $17.5 million in cash from IEH, this values it at a per share price of $3.50. There's just shy of $5 million in short-term debt on the books, which as the agreement isn’t going to be absorbed by IEH, so the assumption is that Roka will have to settle this with the cash it gets from the sale. Take this off the balance (leaving a net of $12.5 million) and the per share valuation comes in at $2.50.So this is substantially above the current price, meaning that if the deal closes as per the terms outlined, an entry ahead of close could be a nice quick turnaround speculative/special situation position.Keep in mind that there may be external factors that come into play here and this makes the trade a risky one. There's about $4 million on the balance sheet in deferred long-term liability charges and the Asset Purchase Agreement doesn’t detail exactly what's going to happen to this balance at close – there's a good chance that these again will be covered using the cash payment, which would reduce the per share value to something like $1.70.Even with that in place, however, there's still plenty of upside to be had on current prices if the transaction close-out runs smoothly and Roka offloads its assets as planned.Bottom line: it's a hit and miss trade but as a short-term punt it could be well worth a shot.We will be updating our subscribers as soon as we know more. For the latest updates on ROKA, sign up below!Image courtesy of reynermedia via FlickrDisclosure: We have no position in ROKA and have not been compensated for this article.