There is NO dilution if the offering is made at the current price. Sure, each shareholder has a "smaller" percentage of the company, but that's directly offset by the increase in current assets from the cash infusion. The only thing that will build or lose value is the rate of return management is able to generate by investing these additional assets.
I don't buy any excuse for Bucalo or his CFO who did the same thing.
The fact is Biotech Monthly has asked the question about hedging to dozens of biotech executives over the last two years since that story broke and not a single one has a hedge. Most biotech company Boards prohibit hedging.
Is it legal? Yes.
Should it have been regularly disclosed in 10-K/Q filings as a matter of propriety (as opposed to a matter of law)? Yes.
If he wanted to protect his investment, he should have sold and let the chips fall where they may at the time.
There are many good biotech companies out there with honest, forthright management teams. If the fact the company's CEO bet against shareholders doesn't bother you, then that's your right. Me? I'd NEVER NEVER NEVER NEVER invest in a biotech company where I knew the CEO was profiting when the stock declined.
Don't need to. I have a full understanding of dilution. My position from the start was that one shouldn't look at this as true dilution, such as occurs when execs exercise stock options at a price less than the current price. My position (and the market has validated it) is the misuse of the term "dilution" because it intimates something negative, when it is obviously accepted by the market as a positive.
Since we all agree, I trust this will be the last discussion on the subject, but if you don't want to let it lie, so be it.
Unless you are acquiring a company and buying earnings with each new share, an offering of new shares is considered dilution by the financial community. DNDN's 8 million share offering is clearly dilution. More shares with no significant new earnings. However as someone pointed out, if the new money is used effectively, the dilution can be overcome. The market clearly isn't worried at this point.
Answer the question as stated.
What you are saying is the value of Dendreon has not fallen nor are the prospects for the company any less given the financing. This is obvious.
"Dilution" is a specific term with specific meaning. To say the "value" of Dendreon has not fallen is you stating your opinion (which I agree with) and you're welcome to it. Dilution can be good or bad depending on what the company does with the money raised. However, to say there was no "dilution" is ignorant of the facts.
You must have missed it, but it's been stated several times that the secondary enhanced the value of DNDN. I would love a $3B offer after the offering than, say $2B before. You are being one-demensional and failing to look at the whole picture. Why do you keep belaboring the point. Is it because I make sense, and you, for some reason, don't want to give me credit? Get a life!!
Here's your homework assignment:
If someone offered us a cash buyout deal worth $3 billion, calculate the value per share you would receive both before and after this financing. Report back with the figures.
Why do you keep repeating what I've already said. I admit there is dilution in the percentage of the company you own. I've said this in at least three posts. I will repeat,THERE IS NO DILUTION IN EQUITY IF THE OFFERING PRICE IS THE SAME AS THE STOCK PRICE AT THE TIME OF THE OFFERING. It is unfair to just focus on the word "dilution" as a negative when this is a very positive development and hasn't cost anyone a dollar. Why is this so hard for you to accept?
Some people reading this board will see the word "dilution" and immediately think negative and stay away, not being intelligent enough to know the difference. I don't think you or any of us longs want that!
Seriously, this is a dilution. Perhaps you feel you have the same percentage of book value of the equity. But, your ownership percentage of the company is reduced by the proportion of the dilution.
To keep your same percentage ownership, you must by more shares. In this case (17.4% dilution), if you own 100 shares, you must buy 17.4 more shares to keep your percentage ownership equivalent to pre-dilution levels.
True, there is more money in the treasury from the sale of the shares, so you own more "book value", but you still own less percentage of the company. Even that book value is diminished by the cost paid to the investment bank to make the offering (10% - 20%).
Is dilution necessary in an early-stage biotech? Yes. Was the offering timed well for DNDN? Yes. Is it still dilution? YES.
LAST WORD ON THIS.