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I'm an owner in $HUT8. Yesterday after market close they announced a secondary offering of 15% of the shares.

I understand this is dilutive for the shareholders, and today it seemingly led to a drop in stock price of around 15%.

But I was thinking it through and don't understand why the drop was so hard as it was. It's almost like that the dollars raised in this offering are valued at $0?

This company is not in any financial trouble, so why is it being marked down so heavily?

FYI:

Chris W. Rea
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Ansjovis86
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1 Answers1

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I think you're confounding the issuance size of 15% of common shares with the approximate 15% price drop that you've witnessed. IMHO, in this case that's more coincidence as opposed to correlation.

The key factor I believe to be more relevant to the price drop is contained in the press release:

The Company has agreed to sell to the underwriters (the "Underwriters") 17,550,000 common shares (the "Common Shares") at a price of US$8.55 per share resulting in total gross proceeds to the Company of US$150,052,500. [emphasis mine]

Consider: before the press release, the shares were trading just over $10.00. Then, the company comes along and announces, in effect, "We and our underwriters think the shares are currently worth $8.55."

The market can take that as a cue that the current price is too high, and so the market price moves toward the deal price. After all, if the underwriters weren't willing to pay more than $8.55 per share at this time, why should the market value the shares at a much higher price?

Had the deal price been significantly higher or lower, it would be more obvious that the market reaction is driven more by the deal price and not so much by the additional number of shares being issued. Issuance size can matter, but price is key and probably the dominant factor.

Chris W. Rea
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