Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Global Eagle Entertainment (NASDAQ:ENT), a provider of in-flight Wi-Fi and other services, plunged on Monday after the company announced a convertible debt offering. Along with the offering, major shareholders of Global Eagle will sell 8.3 million shares in a public offering. As of 11:45 a.m. Monday, Global Eagle was down about 14%.
So what: The convertible notes, due in 2035, will total $75 million, with a 30-day option to purchase up to $7.5 million additional notes granted to the initial purchasers. The net proceeds of the offering will be used for working capital and general corporate purposes.
This comes a little more than one year after Global Eagle sold 13.34 million shares of common stock in a public offering, raising about $180 million for the company. The company has been unprofitable in recent years, posting a net loss of $115 million in 2013 and $99 million over the past 12 months, and the sole source of cash flow for Global Eagle has been the sale of stock.
Now what: The market may be reacting more to the public offering by major shareholders rather than the debt offering. The 8.3 million shares that will be sold represent more than 10% of the total shares outstanding, and while these shareholders will retain significant stakes in the company, it's not surprising that the market reacted so negatively to this insider selling. Each shareholder participating in the offering is either a founder or an original investor of one of the subsidiaries which combined in 2013 to form Global Eagle.
Given that Global Eagle is burning through cash, this is unlikely to be the last time the company raises money though share and debt sales. And with insiders holding more than half of the total outstanding shares, more insider selling in the future isn't out of the question.