It is unusual for the market to forgive dilutions, especially unnecessary dilutions which tell shareholders that their BOD does not give a rat's #$%$ about their investment.
Magic has a nasty habit of doing secondaries whenever the price advances beyond a certain level. Long term shareholders are told to take a hike and the market is not deaf.
As of today, that Magic $54M secondary has cost shareholders $108M in lost equity value.
Could someone send Mr. B his bank manager's phone number. Next time he'll know where to go when he decides to raise $50M.
That foolish secondary may have blown away our capital to smithereens but we still have our divies to comfort us! We're minding our pennies while our pounds are providing solid combustible material for the bonfire!
Mr. Market did the honours today again, delivering yet more pain to long-time masochistic MGIC shareholders. Mr B., please can we have more. You haven't done a secondary in ages!
It would appear that Mr. Market has block-booked the woodshed for the next few months to accommodate ensuring MGIC shareholders are appropriately treated following their management's decision to dilute their investment.
This is to be expected folks. It's how the market expresses its feelings in times like these.
Ah, the life of the MGIC shareholder, always wondering when the next secondary will knock them senseless!
No mercy from Mr. Market once your mgt succumbs to the temptation of easy money. Who knows when that weakness will show its ugly head once again? That is what keeps a very solid lid on our pps.
It must be wonderful to be a young whiz kid, well-informed and smart enough to know you can call your elders 'fools'. I guess the definition of education has changed somewhat since I left school!
It's been quite a while since MGIC told us the funds raised in the secondary would be used for potential acquisitions and/or for general working capital needs. Since there has been no mention of an acquisition, we must assume the funds are being deployed to beef up working capital. Does that seem like a reasonable use of funds, which cost shareholders over 25% of their investment, to a '' smart whiz kid '' like yourself?
Fingers crossed Mr. B does not decide to raise more cash through another secondary. If that happens, we'll by crossing under to 50, and the 200 ma's again.
It might sound like a crazy thing to do, given the cash is not needed, but that did not stop Mr. B and his merry BOD last time.
and 25% to the Israeli gov. Wars are expensive and no reason MGIC shareholders should not be allowed to contribute!
What an obscene waste of money!!
What I know, or don't know, makes absolutely no difference. It's what the market doesn't know that is the problem. That is the reason we've gone from $9.50 to $6.50.
"Total net cash, cash equivalents and short-term investments as of June 30, 2014, amounted to $92.8 million."
But no mention of what to do with the loot from throwing the shareholders under the bus though!
Perhaps we'll be thrown under another bus so Mr. Bernstein can bring unused cash higher to $150M!
When you make the mistake of raising capital you don't need, and that mistake seriously harms shareholders, the solution is not to stick your head in the sand and pretend you didn't do anything wrong, as you propose. The solution is to admit the mistake and then do your best to undo it.
In this case that means a share buy-back.
If MGIC had a purpose for the $55M they raised, they would have shared that info with shareholders. They do not have a plan for it and therefore it is now time to admit the error and undo as much of the damage as possible. The damage has cost shareholders around $135 in lost equity value. Sticking their head in the sand could wind up cost that much again. That is not a solution.
That's only $21M. Why not just use the whole $55M? Given the pps direction, it seems likely we'll be in the mid 5's next week or the week after and probably the low 4's within 2 months. If the buyback was put in place now, to be initiated at those levels in a slow methodical way, they should be able to retire at least 10 million shares. that would do wonders for the p/e if growth continues. The only issue is that I fear some of the larger holders will be asking for Bernstein's head when we get to the low 4's. It was completely avoidable after all. This massive destruction of equity was largely the result of doing an unnecessary secondary and that is something is hard to forgive.
It's been months now and not even a hint of what the money is for. It's starting to look like we were thrown under the bus so that management could have a healthy cash cushion to support pay packages going forward. That's the only use of these funds I can see at this point. I hope I'm wrong but we now seem to have a shareholder unfriendly management. How difficult would it be to issue a PR telling us they are actively reviewing potential candidates but there's been no word. If there are no rev/earnings accretive candidates announced soon, the only rational alternative would be to use those funds to retire shares. The whole situation is crazy. First they pay divs to shareholders, then they dilute the #$%$ out of the stock and then they buy back shares. It's starting to look like they have nothing to do and need something to pass the time. I imagine I'm not the only shareholder losing patience here.
I guess we could say we're gained more experience as small investors but, personally, I could have easily gone on living without knowing exactly what it feels like when management throws you under the bus!
" Magic's net proceeds from the offering are expected to be approximately $54.7 million after deducting underwriting discounts and commissions."
That $54.7M, which is now available for useful things like management bonuses, has, a few short months, cost shareholders around $135M in lost share value. Annualizing the equity cost for that $55M gives us an effective interest rate of around 989%. That's expensive money and not the kind of deal one would expect from a solid financially company. Especially when we don't even know what is needed for.
MGIC mgt have serious egg on their faces on this deal. Let's hope they never do it again.
9, 8, 7, 6, ?
I wonder what's next?
Secondaries are always a disaster for shareholders - no exceptions. We'll soon have paid over 100% interest on the money we don't need.
Perhaps the other leg will heal in time as the market forgets about the secondary! Nothing impedes the progress of a great athlete more than shooting himself in the foot.