How a Secondary Offering Should Work... - Bulls on Wall Street

How a Secondary Offering Should Work…


I can’t believe all the “whiny” comments on $NEP today (no disrespect if you were whining… read on).  It was driving me crazy, so much so that I had to post this blog to explain to many of you how a proper secondary should work (and usually does).  

Let me start by saying there are secondaries that are good for the company, and secondaries that are good for the shareholders.  Then there are secondaries that are good for just the management team to line their pockets with cash (usually open shelf offerings).  There are also those that are good for both the company and the shareholder, I call these “Grade A secondaries” and you really need to take the time to understand them.  
Not that I’m calling this guy out, but someone today said: 

“$NEP and $C the Nikkei are lessons in dilution. As a common shareholder nobody cares about you. $SEED, $NSLT and others will teach too.”
This is about the most incorrect comment I’ve read in awhile.  It reminds me of some of the garbage on Yahoo Finance Forums which is why I had to write this blog.
I’m keeping this short and bulleted for ya’ll to digest in pieces;
  • When a company does a secondary offering they usually do this for a specific reason.  Unfortunately in the last year most secondaries were created to save the company from imminent death, and thus the shareholder has become used to thinking “they’re screwed”.  Some of the justified reasons for a secondary are to pay down debt, or make a major acqusition.

  • NEP did a secondary a few months ago at around $4.80 for approximately $18M. The short term traders freaked out, as if NEP did this to screw them.  Instead the company went ahead and made a 13M cash acquisition of a drilling company that adds about $5M to their books (at that time).  Do the math and you’ll see that the return from the acquisition is more than worth the secondary offering.

  • NEP recently bought another rig and they’re fully booked throughout 2010 with 30 more Petro China holes… 

  • NEP has run up from $4.70 ish to $6.90 on Friday.  It hit $7.50 today before the stock was halted.  I suspect they halted it because the financiers were already oversubscribed for the next offering, and they did not want the stock to run too high or the offering would have to be bumped up to a higher value.  Whatever the case the company pulled a miracle and closed a financing for $13M at roughly $6.90!  They just closed at that price on Friday!  It was an all time high close for them, pretty incredible feat.  

  • I repeat, this offering is at the all time high closing price, with warrants priced much higher at $8.10!

  • The company plans to pay down debt with this latest secondary, plus add additional working capital.

  • I suspect the next step will be to either acquire more drills or sign new leases with $PTR which may require some up front cash.


Whatever the case, before you go jumping off a bridge think about this.  NEP has had an incredible run the past week or so, it needed a correction.  Today it correct on a secondary with incredible volume!  Do you think Walmart or Nike or Apple or Exxon has the same float they did when they first started? The answer is NO!  All these companies raised money at opportune times, and they did this for the better long term value for the shareholders.  
The most recent example I can site is $RINO!  Remember this stock @kunal00 and I were buying this thing up at $8-$9.  I sold my position at $20, which I regret.  I should have held more… but you will recall RINO did a major secondary on the run up and everyone thought it was lights out for them.  

Wake up guys, these aren’t $HEB class biotechs running unlimited shelf offerings to screw their shareholders.  These companies aren’t Greek shippers who could give a shit about you, America, or how much you have invested in them.  

These are growth companies with long term growth strategies.
So, you’re either in for the long haul, or you’re a day trader.  Either position is respectable, just remember when you buy into a company like this you’re investing in an incredible long term opportunity.  Every “grade a” secondary always leads to higher share prices.  Some rise faster than others.  Invest wisely.  
I would sign off with “good luck” – but as I always say, luck is for losers.  Good investing.  

Leave a Comment