Why Warner Chilcott Shares Dipped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of women-focused pharmaceutical company Warner Chilcott (Nasdaq: WCRX  ) dropped as much as 11% this morning following the pricing of a secondary offering before the opening bell.

So what: If you're a current shareholder, you may want to hold onto something for this news. A group of funds currently holding Warner Chilcott stock -- including Bain Capital and JP Morgan Partners -- announced their intention to sell 42,864,843 shares of stock in a regulatory filing this morning. That gigantic lump sum of shares represents 17% of all total outstanding shares! Warner Chilcott will receive no proceeds from this share offering.

Now what: And to think, shareholders were overjoyed just over two weeks ago when they received a special dividend of $4 per share from the company! There's little denying that Warner Chilcott is an inexpensive company on paper, but I still can't figure out why the company chose to pay out a lump-sum special dividend instead of instituting a regular dividend and why these funds would choose to bail out now? The answer to these questions could be lumped in Warner Chilcott's next earnings report, which I suggest we pay very close attention to.

Craving more input? Start by adding Warner Chilcott to your free and personalized watchlist so you can keep up on the latest news with the company.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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  • Report this Comment On September 06, 2012, at 6:12 PM, IlanBigfoot wrote:

    Do you think those hedge funds bought a bunch of puts before they announced they would sell? Otherwise, they sure got hurt on the announcement. Maybe they'll change their mind....

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