One week after Globalstar (GSAT 0.69%) stock popped on news of a favorable litigation settlement, shares of the mobile satellite voice and data services provider reversed course today and plunged 12.1% by close of trading. The reason: Globalstar just diluted its shareholders.
Last week, Globalstar announced plans to sell $60 million worth of new common stock -- or as much as $69 million with overallotment -- 80% of which would go into an escrow account to ensure that the company has money needed to pay its lenders their interest and principal.
One day later, Globalstar announced the price at which it would be selling these shares -- $0.35 apiece -- which fixed the size of the share issuance at 171.4 million shares (not counting overallotment) or 197.1 million shares (with overallotment). Controlling shareholder Thermo would buy at least 53% of these shares issued, with activist shareholders Mudrick Capital and Warlander buying at least 5.6% and 2.8%, respectively.
On Friday, the results of the share issuance were announced. In the end, only 171.4 million shares were sold -- indicating there was not sufficient interest in the equity to convince underwriters to exercise their overallotment option.
Between this discouraging news and the fact that Globalstar sold these new shares for just $0.35 apiece, it's no wonder Globalstar stock sank once trading resumed on Monday.
Rather, the surprise is that Globalstar is still valued at $0.41 per share, three days after a more than 10% stake in the company was sold for 15% less than the shares' current market price.
Once that fact sinks in for shareholders, I'd expect to see Globalstar stock sink even further when trading resumes again on Wednesday, after the holiday.