Shares of MICT (MICT -6.08%), a small-cap company that provides a proprietary trading technology platform for the online brokerage, wealth management, and insurance industries, is seeing its stock tumble 18.8% as of 11:45 a.m. EST.
I fear it has only itself to blame.
This morning, MICT announced that it will create and sell 19.3 million shares of common stock, with 19.3 million warrants to purchase shares attached, for $2.80 apiece. MICT noted that the share offering should raise $54 million in cash for the company immediately. The warrants being exercisable "immediately" at an identical $2.80 strike price, there's also the potential to raise an additional $54 million if those get exercised.
That's the good news. Now here's the bad.
On the one hand, yes, MICT could soon have $108 million (before fees) more to work with. Added to the roughly $17 million in net cash on the company's books already, that will give MICT a $125 million war chest -- more than half the market capitalization of the entire company today!
On the other hand, though, putting 38.6 million new shares on the market could potentially explode the share count of this company to more than 130 million and dilute existing shareholders out of 30% of their ownership stake in the company.
As shareholders scratch their heads, wondering why a company that's burning only about $5 million a year suddenly needs $125 million in cash, the only thing that's really obvious here is the risk of stock dilution -- and that's what shareholders are reacting to today.