Shares of Internap (NASDAQ: INAP) dove as much as 20.7% on Friday, following the announcement of a dilutive stock offering. As of 3 p.m. EDT, the stock had recovered slightly to an 18.6% drop.
The provider of data center and cloud computing services is raising $40 million in this stock offering, which is expected to close next Tuesday. Internap is printing up 4.2 million new shares, priced at $9.50 per stub. If underwriters make full use of their option to buy another 630,000 shares, Internap's cash haul would be $6 million larger.
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The proposed offering will expand Internap's share count by at least 24% and perhaps as much as 27%, so today's market action actually leaves a small allowance for value-building along the way. Internap as a whole is seen as a more valuable entity after this dilutive stock offering than before. The company aims to use most of the proceeds to pay off balances under its revolving credit facility, moving any surplus into general corporate uses. In other words, Internap is asking shareholders to help it refinance some high-interest debt.
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