The reason(s) a company does a Secondary (other than the obvious need for cash) are, imho:
1) The company has a positive outlook on the future business prospects and
2) Believes that there is enough demand in the market for additional shares and an increase in the float will help attract new institutional ownership.
As far as #1, why would the company issue shares because it has a positive outlook for the future? Most companies buy back shares that they consider undervalued, not sell more. Buy low, sell high.
As far as #2, at 33 some-odd million shares ORBI has sufficient float for institutional ownership. Look at APW, which with 22 million shares float has institutional ownership of 78% (per S&P data provided by Schwab). I don't think that issuing shares just to increase the float is the reason. It hasn't hurt so far, as we have 43% institutional ownership.
That said the long-term potential for this company is outstanding, but this SPO will act as a short-term brake and will probably cause some of the momentum investors (who really don't give a damn about the long-term prospects of the company) to exit.
Now as to your point of why the buyers of the Secondary don't just buy the shares from the open market: If they did so a simple case of supply and demand would take hold and it would end up costing them a heck of a lot more because buying 2.75 million shares (as in ORBI's case) from the open market will put a lot of pressure on the share price. Therefore in a Secondary, the Investment Bankers also act like traffic cops if you will and they help an orderly absorption of the extra shares without letting the price get out of hand; and once the distribution of the Secondary is complete, they along with their cohorts, the Market Makers, raise up the share price and then give the new buyers a chance to take profits if they so desire.
As I said in Message 3879838 if institutions are demanding the stock (and I believe they are) then there will be almost no discount and the effect on the price will be minimal. However, these institutions will now no longer need to buy the shares on the open market and this will decrease or remove one of the forces recently driving this stock upward.
While the damage to the stock will probably be minimal there is no logical argument that a SPO is bullish, at least in the short term. In the long term, it is less than a 10% dilution and as long as the cash is put to good use will be constructive.
As a Wild Ass Guess with no supporting evidence, I'd guess the SPO will be priced a little above the support at 40. Maybe I'll be proven wrong, the last two days drop will be reversed as investors become wildly bullish about the sudden increase in share supply of nearly 10% (remember supply vs demand?), and the SPO will be priced 2 below the market at 63. :-)
BTW, this will be my last post on this subject as I feel I have taken enough time of this thread.
OK. I'm done too. |
