5 days ago the stock was in the $9.75 range, with everyone able to understand the assets, business model, earning prospects, competition, etc. They announce the are cutting the pie into 2 pieces and the stock goes to $12. The craziest thing is that the company then announces selling 50plus million new shares at $11.65 (a 16% premium over its price a week ago and less than a 3% discount from its surge high of $12) and people jump on it. Cutting it into 2 pieces did not increase the earnings, assets, etc. People do not even know how much debt NRF is going to assign to the new entity and how much will be left behind. Hard to imagine that there are enough foolsgh people to snap up the 50plus million shares (probably closer to 55M after the underwriters ask for the typical over alotment). NRF's preferreds may be ok with this huge secondary, depending on how much of the debt gets assigned to the new entity.....however, even the preferreds' owners will be wary about the diminished earnings available for NRF to pay out dividends and the smaller assets available to cover the preferreds. With the competitive enviroment for BDCs the vields for sound creditworthy new deals is inching down, meaning the new NRF cash will not bring in the same pro rata income as the old absent increasing credit risk. All in all, shocking secondary.
why so? It is true that they are raising over $500M for real assets funded by common stock, with the preferred shareholders collecting ahead of common in the event of liquidation or reorganization. However, they are spinning off a chunk of the company that will make about 35 cents per share (including revenue from NRF for managing it). It will be interesting to see if NRF passes a reasonable chunk of existing debt to the spun off company. If not, it means that more than a third of earning that were covered preferred dividends is gone but all the debt is left behind.
Besides the obvious yield issues, preferred shareholders, particularly institutions, are focused on security and multiple of earnings and net assets to cover preferred. NRF has a huge amount of preferred outstanding that is getting the short end of the stick on this - again, unless about $600M of debt goes to the newly spun off company along with corresponding assets.
As a former shareholder, it is obvious that Ariad is a one trick pony - the pony being Inclusig - albeit that the pony is being tried for several indications. However, if the basic compound causes high rates of stroke and heart problems, mostly from clotting, it is difficult to believe that the other indications have a chance of getting off the ground - particularly since there is actual and potential competitive compounds from reputable pharma companies. It is true that Ariad has some cash, but with Inclusig only approved from a small indication and that the FDA has now even suspended that, income will be nil and cash flow awful with nothing in the bullpen.. No real upside to make people want to own this.
Last month Ariad reported toxicity problems in its only other developmental compound. Let's hope things don't run in threes for Ariad's sake. There is plenty of competition, current and in development, for all the indications that Ariad is pursuing - toxicity is a huge problem for physicians with alternatives, particularly if Ariad is seeking to move ahead of other compounds in first line treatments.
Bad news is that last month Ariad reported toxicity problems in testing of its only other compound.
Bad news is that a month ago Ariad also reported toxicity concerns in testing for its only other compound.
Note also that at the end of Sept. Ariad also reported that it was experiencing toxicity issues for its other investigational compound used in lung cancers. Bad news runs in threes? Another shoe to drop? Lots of current and upcoming competition in CML :and other targets for Ariad -- which magnifies the toxicity questions. Let's see how management tries to explain it away.