OLED technologist Universal Display (Nasdaq: PANL) has priced a secondary stock offering of 5 million shares and presumably started selling the freshly minted certificates on the open market.
Goldman Sachs (NYSE: GS) is the lead underwriter and will handle 3.1 million of the share sales, followed by 625,000 shares passing through the hands of UBS and the rest being handled by a stable of smaller financial firms. An overallotment of 750,000 shares is sure to be exercised in full, because Universal Display's shares are trading comfortably above the $46 price at which the underwriters get 'em from the company, so there will certainly be profits involved. Well played, boys!
Assuming that the overallotment option is fully exercised, Universal Display gets to pack a cool $250 million into its corporate coffers after paying for the financial services involved. As of the last quarterly report, the company had no debt and $73 million of cash equivalents on hand, and in free-cash-flow terms it burned just $4.6 million of cash over the past four quarters. In other words, the company isn't in dire need of fresh cash, so there must be some ulterior motive behind a dilutive offering that increases the share count by up to 15%.
Universal Display is playing it close to the vest, promising to use the cash for general corporate purposes. Here are the two possibilities I find most likely:
- The company wants to pad its patent portfolio with another batch of acquired OLED patents. As consolidated as that body of work has become, some crucial technologies still belong to Xerox (NYSE: XRX), IBM (NYSE: IBM), and other players with little interest in pursuing this market. A $250 million war chest would be enough to bring a lot of those orphan patents home.
- A bigger bank account and the ability to solidify its patent portfolio could make the company a more attractive buyout target, either by private-equity firms or by larger players in the electronics industry. I could certainly see Sony (NYSE: SNE) or Samsung making a play here if the price was right.
Did I miss your favorite theory on how Universal Display could use this cash? Spill the beans in the comments section below. And make sure to add Universal Display to your watchlist, so you can keep up with exactly where the money goes.
