I guess you are short then. Good luck with that. Seems like all of the big shareholders still think highly of JOE's prospects. And now the company is debt-free. Yes, we all get diluted a little, but there is no more interest expense either.
ST. JOE CO. (JOE-$39.68, OUTPERFORM) Analyst(s): Sheila McGrath, Bill Carrier
Initial Look at $600 million Equity Offering Via Deutsche Bank - Bought Deal; Significantly Reduces Risk Profile for JOE shares
JOE filed an 8-K this morning announcing a 17,145,000 share equity raise. Shares were sold to investors at $35 per share. Deutsche bought the shares at $33.833. Capital raise proceeds to JOE just over $580 million. Use of proceeds to take out all JOE debt and have +/- $80 million of working capital.
We have expected a possible capital raise from JOE as the company has been guiding the Street on this since Q307 earnings release.
We expect that the transaction was placed primarily placed with existing large holders that have long-term investment bias.
While this will be roughly 10% dilutive to our $73 per share NAV estimate (as of Q307), we believe this is a significant net positive for JOE shares. JOE just filed its 10-K and we will update our NAV for the 10-K and this offering shortly.
The covenant discussion – a prevalent thesis by the investors short JOE shares – is now over. The risk profile of the stock has been significantly diminished, in our view.
JOE is now a debt free, real estate land development company.
Debt free has multiple advantages for JOE – the covenant discussion is over; JOE is well positioned to navigate the depressed residential conditions regardless of duration; JOE is better positioned to negotiate from a position of strength with new joint venture partners for its desirable commercial acreage, particularly around the relocated Panama City airport.
We believe the size of the offering – obviously a very targeted capital raise – is certainly testimony to the commitment and conviction of the largest holders of JOE of the NAV discount that they perceive JOE is trading at in the public markets.
As of year-end filings, JOE’s top 3 holders controlled over 50% of the stock (Third Avenue, T. Rowe Price and new shareholder Fairholme Capital); top 5 holders own 72% of the shares and top 10 holders own almost 91% of the shares. Short interest stood at about 25 million shares as of last report.
Expect shares to continue to be volatile with the large short interest. We could see initial weakness in the shares (deal priced below yesterday’s close at $39.68); however, we believe any weakness should be short-lived, if at all. This is a strategic positive for JOE shares and we would expect shares to react favorably as this fact is embraced by the market.
We believe short interest should drift lower, and this would also be positive for JOE shares. If there is excess liquidity in the shares today, we would recommend shorts to cover into this volume. We do not see any other “shoes” to drop here for the short thesis. In fact, we expect JOE throughout 2008 may have more positive announcements regarding commercial activity and business development initiatives in NW Florida with the relocation of the airport.