This is egregious. The company announced a monstrous 50 mill share offering after the close last night, only to up the offering by 7 million shares this morning.
Oh, they also priced it DEEP into the hole.
Ensco management doesn’t give a shit about their shareholders. In my opinion, the risk of looming dilution of this magnitude is pervasive in the cash strapped oil sector. It is because of this specter that I deem the industry, at the present time, uninvestable.
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Buy the dip.
Fuck those mother fuckers.
There seems to be a misundersatnding of stock buybacks and share offerings. Most people think the former is always good and the latter always bad. People just look at the reduction or increase in the float, but they **ignore the cash.***
Case in point: if a company whose stock you owned was suddenly $570M richer, wouldn’t you suppose that has SOME positve effect?
It boils down to this: a company increase sharehodler value if it issues more stock when the stock is overpriced or when it buys back more stock when the stock in underpriced. Conversely, it decreases shareholder value when it issues more stock when the stock is underpriced or when it buys back more stock when the stock in overpriced.
Let’s create 2 simple, fictional companies. Each one has no assets except cash.
Company A
Assets: $810k cash
Float: 90k shares
Fair value of stock: $810k/90k = $9/share
Market share price: $10/share (overvalued)
Company B
Assets: $990k cash
Float: 90k shares
Fair value of stock: $990k/90k = $11/share
Market share price: $10/share (undervalued)
*** Now each one uses issues 10k in new shares and receives $100,000 in capital***
Company A
Assets: $910k cash
Float: 100k shares
Fair value of stock: $910k/100k = $9.10/share – increase in fair value from $9 (but still overvalued at market price of $10/share)
Company B
Assets: $1.09M cash
Float: 100k shares
Fair value of stock: $1.09M/100k = $10.90/share – decrease in fair value from $11 (but still undervalued at market price of $10/share)
You can work through similar math for stock buybacks and show that shareholder value is actually decreased when company buys back stock at overinfalted prices. Of course lik all things market-related, the short term stock movement may not reflect the fundamental value change, although in the long term the fundamentals usually win out.