How do you sell 1/4th of the float without killing the stock?
It's actually done quite easily; and here's how you do it.
A few venture capitalists, who invested quite early on, are poised to make a very, very health profit. The problem is, how do you sell 4.5 million shares of a 16.2 million float company? Based on Friday's price action, why sell now and not wait for higher prices? Well, that's it, there aren't going to be higher prices. Here's why.
ZLTQ are not a profitable company. ZLTQ book value is $1.79, which has decreased by a third from $2.77 just two years prior. To continue operations, they need to raise capital. In doing so, they need to raise it while keeping proper investor etiquette. Rather than dump on their initial investors, they need to give them a chance to sell some shares with a profit. Enter a secondary offering.
The secondary offering was priced at a premium. They're usually priced at a 10-15% discount to entice new investors. Unfortunately, the $12 price was just too high, so the MMs had to increase the price of the shares to justify the offering and, in doing so, the MMs ran this up on Friday to kill the remaining shorts. Now, they are flush with shares that they will be selling for $12. Wash, rinse, repeat.
If ZLTQ could sustain these high prices, there would not be a secondary. ZLTQ will eventually have to dilute anyway, but this is an opportunity for their initial investors to get out with a hefty profit. The new buyers of the 4.5 million shares will become the bagholders while the VC firms get to play it safe with a profit. Seen it over and over and over...