Seeking Alpha

StemCells slides after pricing offering

  • StemCells (STEM -14%) falls double-digits after the company prices an 11.17M unit public offering at a 14% discount to Tuesday's close.
  • The units consist of one common share and a warrant to purchase half a share (exercise price is $1.80).
  • Gross proceeds should be in the neighborhood of $16M before underwriter discounts, etc.
  • There's also an underwriter option for 1,675,500 units. (PR)
  • Separately, the FDA has authorized STEM's IND for clinical testing of HuCNS-SC in spinal cord injuries. (PR)
Comments (7)
  • Sammyboy12
    , contributor
    Comments (130) | Send Message
     
    Could someone please explain why a company prices a public offering (which the public never seem to partake of) at a price so much lower than the market price of the existing shares at the time? Existing shareholders lose so much value. To whom does that value transfer? Is the whole process ethical or is it just the law of the jungle?
    2 Oct 2013, 11:59 AM Reply Like
  • beren9
    , contributor
    Comments (3) | Send Message
     
    I agree. How do they define 'public'? Why can't I partake of the offering at a much lower rate than the stock is currently trading?
    2 Oct 2013, 12:54 PM Reply Like
  • Scrying Biotech
    , contributor
    Comments (1985) | Send Message
     
    Sammy ~ "Could someone please explain why a company prices a public offering (which the public never seem to partake of) at a price so much lower than the market price of the existing shares at the time?"

     

    This is done to make the shares attractive to buyers for a quick turn around. The quicker the sale closes the faster the underwriters and company get paid.

     

    Sammy ~ "Existing shareholders lose so much value. To whom does that value transfer?"

     

    Essentially, it transfers to the company in the form of additional capital to operate with. The effect on shareholders is the old double whammy - a lower share price until it recovers and (if you hold on) diluted value of your existing shares.

     

    Sammy ~ "Is the whole process ethical or is it just the law of the jungle?"

     

    You answered your own question. It is legal however. ;-)

     

    Beren ~ "How do they define 'public'? Why can't I partake of the offering at a much lower rate than the stock is currently trading?"

     

    For the same reason you can't partake in an IPO's initial offering price - because the shares are dispersed through the booking agents brokers first. Their clients are the "public" referred to in the press release and usually are in a different socioeconomic stratosphere than you and I.

     

    Hope this helps and if anyone notices an error on my part, please note this in the comments section.

     

    Thank you,

     

    Michael Webb
    2 Oct 2013, 03:37 PM Reply Like
  • iberia
    , contributor
    Comments (44) | Send Message
     
    Don't you think that STEM is a good investment after all?
    In deed, it's that IPO's buyers seem to consider. Specially upon the FDA announcement of today. If not, why both things would get public on the same day?
    So, if this is a bargain for them, it's also a bargain for existing shareholders in a long run.
    2 Oct 2013, 05:15 PM Reply Like
  • krishan.duggal
    , contributor
    Comment (1) | Send Message
     
    FDA announcement will definetly help this stock.In my view this is a good stock.
    3 Oct 2013, 02:04 AM Reply Like
  • Sammyboy12
    , contributor
    Comments (130) | Send Message
     
    Michael,
    Thanks for your reply. I fully intend to hold onto my shares, if not add to them but it is all very galling that existing holders are not given the opportunity, say in a rights issue, to obtain some initial benefit (notwithstanding the future promise of a great company performance).Just an observation from a member of "the underclasses", stratospherically speaking!
    3 Oct 2013, 03:57 AM Reply Like
  • Scrying Biotech
    , contributor
    Comments (1985) | Send Message
     
    Sammy, I'm with you but don't hold your breath on that one. Cheers my friend!
    3 Oct 2013, 04:47 AM Reply Like
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