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United Natural Foods, Inc. Message Board

  • box_o_stox box_o_stox Sep 27, 2010 10:22 PM Flag

    Wow - over 10% increase in shares outstanding

    (3.85M + 578K) / 43.8M = would be a 10.1% increase in shares out...

    That is a significant hunk of dilution.

    Especially surprising considering they are paying only LIBOR + ~1% on most of their debt, a very low rate (1-mo LIBOR is currently 1/4 of 1%).

    Why would they dilute and sell so much of the stock to pay debt when they're paying so little for their credit? They also reduce their operating leverage.

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    • down in denver co unfi are violating their worker`s civil rights if they try and unionize an obtain contracts like spinner and funk and are scaring rest of the of them that working in their sweat shops.i know my friend works for them NO ETHICS

    • Buying pressure last Friday could also have been partially the result of traders covering their short positions that were opened after the secondary was announced.

    • I originally guessed higher and then wrote 32-33. Shares traded slightly lower than 33 yesterday--not sure when offering price was finalized. Those who got shares may be flipping them today for a quick few percentage points. Nice that you were able to get shares, I didn't try--not really interested in increasing the number of shares I own.

      Oversubscribed...That is rather telling how investors feel about UNFI's prospects, IMO. Yes those who did not buy 10% more shares are diluted, but what we own is a company with less debt and more flexibility for the future. Let's see what happens.


    • You were right. My broker got me in on the deal at 33.00. Only got about a quarter of what I asked for as it was oversubscribed. But still a good trade. Good luck longs.

    • Greetings box, I wasn't trying to "spin" anything as evidenced by my posting the comments of an investment firm and not my own thoughts! (for the most part).

      I don't beleive UNFI has ever issued corp debt before and perhaps management prefers other sources to fund its operations. As noted before, if one doesn't have confidence in management, then perhaps they should exit their position!!! While company insiders are not huge holders of stock, they are impacted by their actions just as we retail holders are. Maybe during a conference call someone will ask them why they chose the equity issuance over debt, but I have to imagine they have/had their reasons. Not all, but some of the highly rated companies that have recently issued debt was because a fair amount of their cash is held hostage abroad (although I recently read that there may be an tax amnesty allowed to repatriate the cash).

      We can only guess what coupon they'd have to pay for debt.

      A company's overall financials dictate their rating, not the same as an individual where payment history is a major factor.

      Over and out for now.

    • You're welcome. I work for a fixed income shop. As far as getting shares, I imagine they will be placed with insitutions. Price is usually discounted from the closing price the day before and we probably won't know until the deal is closed.

    • Nice article. Thanks. I'm pretty active in the bond market. B+ rating won't get you favorable financing terms. Coupon would be about 10%. But then, nobody likes dilution. II'm sure they weighed out all their options. Hopefully its for a favorable divine plan. Does anyone know how to get shares at the new offering price? Do we know yet what the price will be?

    • Look, you can spin it however you want. If they'd issued some paper, they could have gotten some great experience doing that, and built up their history and credit rating going forward. This period in history with extraordinarily low rates may be a missed opportunity that will never come again.

      If they'd done what most of the companies in that article did - that is, sell bonds and buy back stock - they would be telling shareholders they feel their stock is a better investment and will return more than those bonds going forward.

      Instead, they've done the reverse, no bonds at all and a large sale of stock instead. Read it how you like.

      Regardless, the move seems unfriendly to shareholders in my view, as evidenced by what's happening to the share price (market cap equilibrium = shares out x PPS).

    • The following is from a Bloomberg terminal (subscription):

      "Overallotment option for an additional 577,500 shares".
      "We view the issue (secondary) as a positive development because although the debt level was manageable, recent acquisitions consumed cash and the capacity to complete additional transactions may have been constrained. As (a) low margin service provider, driving volume will always be critically important for UNFI. Therefore keeping some dry powder to capitalize on accretive acquisition opportunities is important from a strategic perspective" M Partners (Canadian firm).

      There's a relatively new product competing with S & P and Moody's called Rapid Ratings--some may have seen one of their reps on BloombergTV or (god forbid) CNBC. What I'm getting at is that although I'm pretty sure UNFI has no corporate debt, I don't think their paper would be rated that highly which would correspond to a higher coupon on any debt they might issue (compared to MSFT etc.)--of course rates are LOW.
      Rapid Ratings rates companies on a scale of 0 - 100; UNFI is rated 47 which can be loosely translated to B+ for S & P and B1 for Moody's.

      On another note, FWIW, (again from Bloomberg terminal) three analysts have chimed in since the secondary was announced. Two maintained their "buy" rec and one maintained their "sell" rec (this analyst has had a "sell" on UNFI since last Nov).

    • "Especially surprising considering they are paying only LIBOR + ~1% on most of their debt, a very low rate (1-mo LIBOR is currently 1/4 of 1%).
      Why would they dilute and sell so much of the stock to pay debt when they're paying so little for their credit? They also reduce their operating leverage".

      According to Yahoo (which can be dangerous), UNFI has approx $296M in debt. Offering is for 3.85M shares. Assuming the offering is around 35 bucks less fees, UNFI will receive around $130M or LESS than half of its debt. Selling shares when the company's share price is relatively high makes sense. UNFI is only paying 1% + LIBOR for "most of their debt"??? In other words, "most" of UNFI's debt is revolving? Some day rates will go up; I have no problem with UNFI paying down some of its revolving credit--of course, the other route would be to sell some term debt to take advantage of the low rate environment. Apparently UNFI likes selling more shares at this level. Any long can step up and increase their holdings by 10% if they're concerned about dilution.

      • 2 Replies to wooglin_kai
      • That's just it - if you want to keep your same percentage stake in the company, you have to put up 10% more money.

        Or in other words, all current holders stakes' will be 10% less soon, and that's likely why the stock is selling off.

        It's simple math - to maintain equilibrium in the market cap, the share count goes up, PPS goes down, EPS numbers have to come down, etc.

        So one conclusion could be management agrees with you that the share price is high and selling stock is a good idea.

        As for debt management, look around. Most companies everywhere are selling term debt at attractively-low rates (even cash-rich MSFT), and buying back their own stock.

        Yet, here UNFI is doing the exact opposite: giving up ~1% interest rates and selling their stock instead. Would you do that? It kind of boggles the mind.

      • I may have been a tad aggressive with my guess with the price the shares will be sold at...perhpas 32 - 33 bucks???

40.89-0.18(-0.44%)Oct 21 4:00 PMEDT