Shares of GrafTech International (NYSE:EAF) fell 11% on Friday after the company's majority shareholder filed to sell off another chunk of its holding. The slow unwind of the controlling owner has weighed on GrafTech shares for some time now, and the pattern is continuing today.
GrafTech, a manufacturer of the graphite electrodes used in steel production, was taken private in 2015 by affiliates of Brookfield Business Partners (NYSE:BBU) and returned to public markets three years later via an initial public offering. Since the IPO, Brookfield has remained GrafTech's majority shareholder but has been slowly selling off its holdings.
Brookfield affiliates on Friday filed to sell an additional 20 million GrafTech shares, a move that would increase the public float, or the number of shares available for trade. These secondaries typically put pressure on the stock because they increase the supply of stock available to trade.
There's good news and bad news for investors in this particular sale. According to the filing the offering would push Brookfield to 47.8% ownership, from 55.3%, meaning it would no longer have majority control. But Brookfield would still be left with more than 127 million shares, meaning there are likely future secondaries ahead after this one is done.
When a controlling shareholder sells, it's only natural for retail investors to worry that the insider knows something smaller holders do not. In this case, I don't believe that should be a concern.
This is Brookfield's business model, and from the beginning it was always assumed the investment firm would sell off its stake instead of holding forever.
GrafTech also gave an update on the business to go with the offering, saying it expects fiscal 2020 earnings per share to come in between $1.58 and $1.62, ahead of the $1.56 consensus, on stronger than expected revenue. The company is also optimistic about 2021, saying "if the strength in the steel industry continues, we would expect market improvement for our products later in 2021."
There's still a lot to like about GrafTech. The company's products are a key component of electric arc furnaces, which are becoming a dominant force in steel production because they are more environmentally friendly and make it easier for steel producers to meet regulatory requirements.
Alas, the Brookfield selldown continues to cast a shadow over the business.