Shares of graphite materials producer GrafTech International (NYSE: EAF) were down more than 11% on Tuesday morning after the company's majority shareholder filed to sell a portion of its holding. The sell-off continues a volatile pattern for GrafTech shares since the company's IPO last April, with the stock now down more than 15% since the offering.
In a filing after markets closed Monday, GrafTech said it was launching a secondary offering to allow majority shareholder Brookfield Business Partners (NYSE: BBU) to sell down its stake in the company. GrafTech will sell at least 17.5 million Brookfield-owned shares in the offering, with the underwriters granted the option to purchase an additional 2.625 million shares as part of the deal.
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Brookfield took GrafTech private in August 2015, returning the company to public markets in April 2018 via an initial public offering 35 million shares priced at $15 apiece. In the months since, GrafTech shares have traded as high as $24.36 and as low as $10.27. Even after the secondary Brookfield will still be GrafTech's majority owner, with the offering reducing its stake from 78.97% of total shares to 72.04% assuming the underwriters exercise their option.
It's never good to see a majority shareholder hitting the "sell" button, but it's worth remembering that Brookfield will remain a major holder and isn't racing for the exits. For a $3.7 billion market cap company, GrafTech has a relatively small float, and it also has an average daily trading volume of only 1.28 million shares. I'd argue shareholders will benefit over the long term, assuming this 50% rise in shares available for trading helps to stabilize the stock and reduce volatility.
GrafTech is one of the two largest producers of graphite electrodes, used in steel production, outside of China, accounting for about 24% of non-Chinese global production capacity. The company on February 8 reported fourth-quarter earnings of 79 cents per share, beating consensus by $0.01 per share, on revenue of $532.79 million that was up 176% year over year and $56 million better than estimates.
There are some near-term concerns about global graphite electrode demand and pricing tied to questions about the Chinese economy. But the market reaction to Brookfield's selling a small percentage of its stake appears overdone.
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