Shares of the Marcus Corporation (MCS 0.34%) fell as much as 34.6% in trading Thursday after the theater and hotel company announced a big debt offering. At 3:15 p.m. EDT today, shares were still down 33.4% for the day and not showing any signs of recovering.
Management announced today that it's launching an $87 million convertible-note offering, which could grow to $100 million if underwriters exercise their overallotment option. Proceeds will be used in part to buy a capped-call transaction to limit the potential dilution of shares. The rest will be used to pay down the company's revolving credit facility.
The sheer size of the transaction is surprising given Marcus' current $282 million market cap. And the fact that management thinks it needs that much cash at a time when recovery for both theaters and hotels is questionable shouldn't make any investor comfortable.
Investors don't like dilution, but they also don't like companies that need to raise money just to survive. That's where the theater and hotel business is today. And for the Marcus Corporation, it's a double whammy. I would question buying shares since debt is added to the balance sheet, and that's why investors should be very cautious about thinking this is a buying opportunity today.