Q: OGI closed yesterday at $3.65. The company announced this morning that it was selling 7.74 million shares to a syndicate of underwriters for $3.23 per share.
After the market opened, OGI is down >20% to ~$2.85.
Why did the company apparently shoot itself in the foot by doing this?
After the market opened, OGI is down >20% to ~$2.85.
Why did the company apparently shoot itself in the foot by doing this?
5i Research Answer:
Financing terms are set with negotiations between the company, underwriters and prospective buyers. With a stock down 92% in five years, as OGI is, a company in need of money is not in a good position of leverage in these negotiations. Most deals are done at a discount of 5% to 7%. This financing included warrants, so buyers could sell stock and keep the warrants acquired in the financing to maintain exposure to the company. This put more pressure on shares. Investors don't like the dilution, and if they sense a deal is not going well they may sell their shares even more aggressively. It's not the worst financing we have seen, but certainly a harsh reaction.