Why ModusLink Global Solutions, Inc. Shares Tumbled Today

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 ModusLink Global Solutions, (NASDAQ: MLNK  ) plunged more than 14% Thursday after the company announced pricing of $90 million in convertible debt to be offered to institutional investors.

So what: The notes will mature on March 1, 2019 -- assuming they aren't earlier repurchased or converted -- and will carry an interest rate of 5.25%. The notes will be convertible into ModusLink common stock at a rate of 166.2593 shares per $1,000 in principal, or the equivalent of roughly $6.01 per share. ModusLink also granted the initial purchaser a 30-day option to buy up to an additional $10 million in notes.

Now what: ModusLink may have turned in encouraging quarterly results last week, but these are some big numbers for a company whose entire market capitalization currently sits at less than $215 million. What's more, the final total is significantly larger than the $75 million proposed by ModusLink yesterday.

What could ModusLink be up to? Today's press release doesn't provide much detail, except to say they intend to use the proceeds for "general corporate purposes, which may include potential acquisitions and other strategic business opportunities." While I can't help but think that management has something up its sleeves, the company still insists "no material acquisitions are probable at this time."

As a result, until we receive more clarity on ModusLink's plans, I'm fine sticking by my previous stance of patiently watching from the sidelines.

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