The NYSE-listed stock of Scorpio Bulkers plunged 37% over two consecutive trading sessions as the company sold shares to fund its newbuildings.
Late on 10 June, the company priced 133 million shares at USD1.50/share, a 31% discount versus the 9 June closing price and a 38% discount versus the 8 June closing price. Under typical business conditions, a follow-on offering will price at a mid- to high-single digit discount to the previous day’s closing price.
Scorpio Bulkers’ share sale is one of four shipping offerings in the past nine months that have priced at extremely high discounts. Star Bulk priced offerings at 23% and 15% discounts in January and May respectively, and DryShips priced an offering at a 30% discount in October 2014.
Scorpio Bulkers will garner gross proceeds of USD199.5 million, or USD229.4 million if the underwriter option for an additional 19.95 million shares is fully exercised. Scorpio Services Holdings – a company that is 10% owned by CEO Emanuele Lauro, 10% owned by president Robert Bugbee, and 7% owned by COO Cameron Mackey – purchased 10M shares of the offering for USD15 million.
The stock price of Scorpio Bulkers was driven sharply lower because of the large number of shares sold. Prior to the offering, there were 180,678,466 common shares outstanding. The offering will increase the number of shares outstanding by 74% (or 85% if the underwriter option is fully exercised).
Related news:Scorpio Bulkers continues retreat
Stock pricing typically falls when a follow-on offering is announced, because the number of shares investors own before an offering will be devalued as the total number of shares increases, assuming investors do not buy more shares to keep their ownership percentage constant.
On 10 June, after the Scorpio Bulkers offering was announced, the stock price sank 26% in extremely heavy volume. There were 20.2 million shares traded, 19 times average volume.
An unusual aspect of the Scorpio Bulkers offering was the activity during the 9 June trading session, prior to the offering announcement made after the closing bell. Scorpio Bulkers shares fell 10% on 9 June, a day when other shares in the sector were not under similar pressure. Shareholders who fortuitously sold stock on 9 June averted much steeper losses during the following trading day.