Shares of containership operator Danaos Corporation (NYSE:DAC) hit a reef and sank 20.5% through 12:20 p.m. EST Tuesday, one day after the company informed the SEC of a massive share sale by its second-largest shareholder.
Yesterday after close of trading, TheFly.com reported that someone had placed a "block trade" order to sell 3.1 million shares of Danaos at any price offered between $11 and $12. This morning, the trade executed -- and the price was at the very bottom of that range.
This news obviously came as a shock. After all, Danaos closed trading yesterday at nearly $15 a share. Less than one hour later, someone offered to dump a large load of shares on the market for as much as $4 less than that -- and this morning, someone else took it up on that offer.
So who was trying to exit Danaos stock last night? According to an SEC filing that was made at some point last night, it was "funds affiliated with Cerberus Capital Management," the big hedge fund run by billionaire Stephen Feinberg that (used to) own 15.4% of Danaos stock outstanding (according to data from S&P Global Market Intelligence).
As of this morning, of course, Cerberus doesn't own any Danaos stock at all. According to the filing, Cerberus "no longer beneficially own[s], directly or indirectly, any shares of the Common Stock or any other securities of the Company."
Shareholders are naturally panicking at Cerberus' abrupt exit, but I'm not sure there's really cause for worry. For one thing, even after today's decline, Danaos stock is up 145% over the past 52 weeks -- so it looks to me like the hedge fund is just cashing in some profits on a big win. Cerberus certainly isn't dashing for the door just ahead of a big earnings disappointment. We know this because Danaos reported its earnings just earlier this month -- and it beat earnings. It'll be nearly three more months before Danaos has a chance to deliver anything resembling bad earnings news, if then.
It's probably also worth remembering that in any stock transaction, when one person is selling, another is buying. And with Danaos stock now priced below two times trailing earnings, someone just got an incredible bargain.