Last night (July 8), Seadrill (NYSE:SDRL) took the highly unusual step of withdrawing the contemplated convertible bond issuance and voluntary incentive payment offer I wrote about yesterday. The company cited yesterday's 5.3% price drop (which prompted my article on the overreaction) as creating an "unattractive conversion price for the issue".
Today (July 9), SDRL stock partially reversed itself, gaining 2.8% on the news of the reversal. Albeit not as attractive on an entry point as yesterday, I maintain that the market, net-net, overreacted and created a 2.5% "coupon". Heeding my own words, I purchased a position yesterday, which I held today and expect to continue to hold.
While some can argue about reversing a corporate decision, I think it took a lot of guts for SDRL's management to listen to the "market". As a practicing CFO, the ability to react to events in real time is a sign of a strong and confident management team. I do think SDRL should reconsider its communication strategy as clearly the company's actions were not clearly explained and therefore misunderstood. I suspect Tuesday's strong negative open created a "shoot first and ask questions later" mentality which contributed to the overreaction.
Disclosure: The author is long SDRL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.