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Why 21Vianet Stock Skyrocketed Today

By Evan Niu, CFA – Aug 26, 2020 at 5:19PM

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The Chinese tech company priced a secondary offering, raising cash to expand its data center infrastructure.

What happened

Shares of 21Vianet (VNET -2.27%) skyrocketed today, booking gains of 17% at the close, after the company reported pricing for a previously announced follow-on offering. The deal priced at a very modest discount to yesterday's close, allowing the company to raise capital on favorable terms.

So what

The offering priced at $20.75 per American depositary share (ADS), compared to yesterday's close of $21.09. Companies often price secondary offerings at a discount to incentivize investors to buy shares through the offering instead of in the public market, and in this case the discount was rather minimal.

Interior of a data center filled with servers

Image source: Getty Images.

The Chinese tech company, which provides cloud data center services, sold 17 million ADSs at that price, with underwriters having a 30-day option to buy 2.55 million more ADSs depending on investor demand. Each ADS represents 6 Class A ordinary shares.

Now what

21Vianet expects to receive net proceeds of approximately $338.7 million to $389.6 million, depending on whether underwriters exercise their options, according to the prospectus. The company plans to use around 80% of that cash to expand its data center infrastructure through organic growth and strategic acquisitions. The remainder will be allocated to research and development and other general corporate purposes such as paying down debt.

21Vianet had roughly $705 million in cash and cash equivalents on the balance sheet at the end of the second quarter.

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

VNET Group, Inc. Stock Quote
VNET Group, Inc.
$4.74 (-2.27%) $0.11

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