What happened
Shares of hydrogen fuel cell pioneer Plug Power (PLUG -6.95%) ended on a high note Monday, rising 6.7% to close at $25 on the nose. But then the bad news broke.
After close of trading for the day, Plug announced plans to cash in on its stock market success by selling at least $750 million worth of new shares, and perhaps as much as $862.5 million worth. Plug would thus dilute its existing shareholders in a grab for cash to accelerate its already rapid sales growth.
And then the news got worse. Five hours after the initial announcement, Plug revised its plan, saying it will sell 38 million shares of stock at $22.25 per share (for $845.5 million) and then grant underwriters the chance to buy another 5.7 million shares, raising an additional $126.8 million.
Image source: Getty Images.
So what
In total, Plug's plan could gross (before fees) nearly $1 billion for the company's plans to expand production of fuel cells, and accelerate its entry into the business of mass-producing hydrogen gas to power them. The downside is that Plug will probably issue a grand total of 43.7 million shares to do so.
Added to the 437.7 million shares already outstanding, this works out to almost precisely 10% dilution of existing Plug Power shareholders. And the new shares will be sold at an 11% discount to Plug's closing price from Monday.
Now what
And yet with 10% dilution and an 11% discounted price, why was Plug Power stock down "only" 7.8% at 10:50 a.m. EST Tuesday?
Plug needs this cash. It has never generated a full-year profit on its own in more than two decades in business, and it's burning through its savings at the rate of more than $185 million per year, according to data from S&P Global Market Intelligence. Today's cash grab, dilutive though it might be, is going to raise enough money to finance Plug's expansion plans for the next five years.
In one fell swoop, Plug is capitalizing on its soaring stock price to eliminate concerns that it might go bankrupt -- essentially ever. And the company is securing plenty of time to build its own hydrogen production business that it has promised to deliver to investors.
Skeptical as I have been (and remain) about this company's continued inability to turn a profit, I have to admit: Today's stock sale is a masterstroke, and anyone who truly intends to own Plug Power stock for the long term should be thrilled.
