What happened

Shares of basic materials producer Ecovyst (ECVT -5.49%), which describes itself as a provider of specialty catalysts and services, fell sharply on Thursday, dropping as much as 19%. By roughly 2:30 p.m. ET today, the stock was still lower by a huge 18%, so most of the drop seems to be sticking. That's not surprising, however, given the news flow over the last couple of days.

So what

On Wednesday after the market close, Ecovyst announced that a large shareholder would be selling 12 million shares. The underwriters were given the option to increase that sum by 1.8 million shares.

The key here is that this was not the company selling stock, so it isn't going to see any cash from this transaction. In fact, the company planned to buy half of the stock being sold, or 6 million shares, so it was actually going to have to spend money on this deal.

Then, before the market opened today, Ecovyst announced that the offering had been increased to 13 million shares, with the underwriter having the ability to increase that by another 1.95 million shares. The news release set the price at $8.75 per share, well below where the stock ended yesterday.

Ecovyst still plans to buy half of the offering, or 6.5 million shares. That means the company is going to spend around $57 million, which is nearly 38% of the $151.2 million in cash it had on hand at the end of the second quarter. That's a material chunk of change.

Now what

Normally when a company announces a stock sale, it's to raise cash for capital investment or some other value-enhancing endeavors, like debt reduction. However, Ecovyst is spending a substantial sum here to help reduce the overhang that this additional stock could have on the share price.

But there's nothing it can do about the fact that the selling price on this deal was materially below the market price of the stock (not coincidentally, the difference is about equal to the percentage drop in the stock price today). Investors weren't pleased with all of this and sold the shares down to just a touch above the $8.75 share price at which the stock is being sold.