(NEW YORK)--Avanir Pharmaceuticals (NASDAQ:AVNR) announced after the bell Tuesday that the company intends to offer and sell shares of its common stock in an underwritten public offering, but investors may want to consider some points before making any quick decisions.
Offering Size
First off, the Company currently has an effective registration statement from late September for up to $75 million of common, and preferred shares. Now its important to note that this is for $75 million in stock, and not 75 million shares.
Secondly, being that the registration is already effective the company could sell up to $75 million of stock at a set price to the public market, but that does not mean the company will elect to sell the whole $75 million in one shot. Some rumbles after the bell indicate that the offering may be as little as 4.1 million shares, which would provide for minimum dilution to common shareholder. Again, these are just rumors and is still just speculation until confirmed and priced by the company.
Third, the company may elect to set a price for sale at a later date, higher price, or not at all. More then likely a company would not make such a public statement unless an offering was planned, but this doesn't mean today's closing price is the price they plan to sell. The Company could elect to keep this option open and set a price when the stock is at a much high levels.
The main thing is just because a company has an effective statement for up to $75 million doesn't mean they plan on issuing the whole block in one shot and at such a low price. With $43 million of cash on hand the need for an extra $75 million in one offering seems a little unlikely.
Institutional Placement
The Company announced that Jefferies & Company would be acting as sole book-running manager for the offering, and Canaccord Genuity Inc, Wedbush PacGrow Life Sciences, Summer Street Research Partners, and Merriman Capital are acting as co-managers for the offering.
These are investment brokerage firms with established retail and institutional desks. If you take into account institutional ownership has increased in Avanir over the past couple of weeks, the demand for any such offering may be high for their institutional clients. Unlike OTC stocks, which have no means of share distribution and tend to unload right into the open market, Avanir is a NASDAQ listed issue, and will thus be underwritten by several institutions in a syndicate.
It is very well possible that a large portion (60%+) of this offering could be placed through large blocks directly into longer-term hands through their institutional placement desks. The remaining amount of the offering could then be pitched to the firms best clients through their extensive broker retail desks.
Point being that any potential offering will not be just poured into the public market at will, but rather placed in stable and diverse hands to control the offering. Thus is the reason why it's always a positive to be underwritten by an extensive syndication.
Retail Desk Support
The firms underwriting this potential offering all have strong retail trading desks, managed by several hundred, if not thousands of stockbrokers. As with anything on Wall Street, you are only as good as your last deal, and these firms will provide a floor to the stock around their clients offering price, if not higher. All of these firms have price targets on the Company well over $10 per share, and you could now expect these firms to have their retail desks provide support on the phone for the stock going forward.
Buyout Indication
What this offering does indicate is the likelihood of a near-term buyout from a larger pharmaceutical company has now been diminished. This does not mean a buyout on the company still couldn't be something that may happen down the road, but does show the company may be planning to at least get their sales operations in place before making any moves in that direction.
The point being is investors should trade the facts, and not with their hearts. Until actual data on any price or share amount is announced traders may find themselves trading right into this the syndicates hands. The other main fact to come away with is this is not an OTC stock, which tends to unload into the open market, but rather an underwriting through a syndicate of brokerage firms with strong institutional and retail placement desks.
Secondly, being that the registration is already effective the company could sell up to $75 million of stock at a set price to the public market, but that does not mean the company will elect to sell the whole $75 million in one shot. Some rumbles after the bell indicate that the offering may be as little as 4.1 million shares, which would provide for minimum dilution to common shareholder. Again, these are just rumors and is still just speculation until confirmed and priced by the company.
Third, the company may elect to set a price for sale at a later date, higher price, or not at all. More then likely a company would not make such a public statement unless an offering was planned, but this doesn't mean today's closing price is the price they plan to sell. The Company could elect to keep this option open and set a price when the stock is at a much high levels.
The main thing is just because a company has an effective statement for up to $75 million doesn't mean they plan on issuing the whole block in one shot and at such a low price. With $43 million of cash on hand the need for an extra $75 million in one offering seems a little unlikely.
Institutional Placement
The Company announced that Jefferies & Company would be acting as sole book-running manager for the offering, and Canaccord Genuity Inc, Wedbush PacGrow Life Sciences, Summer Street Research Partners, and Merriman Capital are acting as co-managers for the offering.
These are investment brokerage firms with established retail and institutional desks. If you take into account institutional ownership has increased in Avanir over the past couple of weeks, the demand for any such offering may be high for their institutional clients. Unlike OTC stocks, which have no means of share distribution and tend to unload right into the open market, Avanir is a NASDAQ listed issue, and will thus be underwritten by several institutions in a syndicate.
It is very well possible that a large portion (60%+) of this offering could be placed through large blocks directly into longer-term hands through their institutional placement desks. The remaining amount of the offering could then be pitched to the firms best clients through their extensive broker retail desks.
Point being that any potential offering will not be just poured into the public market at will, but rather placed in stable and diverse hands to control the offering. Thus is the reason why it's always a positive to be underwritten by an extensive syndication.
Retail Desk Support
The firms underwriting this potential offering all have strong retail trading desks, managed by several hundred, if not thousands of stockbrokers. As with anything on Wall Street, you are only as good as your last deal, and these firms will provide a floor to the stock around their clients offering price, if not higher. All of these firms have price targets on the Company well over $10 per share, and you could now expect these firms to have their retail desks provide support on the phone for the stock going forward.
Buyout Indication
What this offering does indicate is the likelihood of a near-term buyout from a larger pharmaceutical company has now been diminished. This does not mean a buyout on the company still couldn't be something that may happen down the road, but does show the company may be planning to at least get their sales operations in place before making any moves in that direction.
The point being is investors should trade the facts, and not with their hearts. Until actual data on any price or share amount is announced traders may find themselves trading right into this the syndicates hands. The other main fact to come away with is this is not an OTC stock, which tends to unload into the open market, but rather an underwriting through a syndicate of brokerage firms with strong institutional and retail placement desks.
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