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Summary

  • Seadrill withdrew bond offering announced on Monday.
  • Managements actions were unexpected and demonstrate poise, confidence and concern for stockholders.
  • Buying opportunity reconfirmed as "offending" action eliminated with only partial price recovery.

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.

Source: Update: Seadrill Withdraws Bond Offering Following Market Overreaction