nuance n. A subtle or slight degree of difference, as in meaning, feeling, or tone; a gradation.
So reads the dictionary definition. But there was nothing subtle about yesterday's news that Nuance Communications
- Nuance will issue 9.6 million new shares of common stock;
- Warburg Pincus, which already owns 31.6 million shares, intends to unload 4.8 million of them, paring its stake in Nuance by about 15%;
- "Certain members of Nuance management" will join in the fun (and profit!) by selling 600,000 of the shares that they personally own.
Now, I doubt anyone is surprised to see Warburg Pincus taking some of its winnings off the table. After all, Daddy Warburg is in this to make money, and with the stock having doubled over the past year, it's understandable that Warburg would want to cash in some chips.
More worrisome, to me, are the sales by management. I mean, by all accounts, business is booming at Nuance, as expanded relationships with well-heeled customers from Nokia
But what do we get out of it?
If by "we" you mean Nuance shareholders, then here's the deal: As is usual in these kinds of transactions, when shareholders (management or otherwise) unload their shares, the company makes not a red cent off of that. The only sales that help out you, the investor, are those that Nuance makes by issuing new stock and selling it for cash. According to the release, we could see as many as 10.7 million shares converted into cash in this manner, if underwriters Citigroup
At the $21 and change the shares were fetching last night, such a sale could have conceivably raised as much as $225 million (minus fees). But as is usual with such news, it has already caused a sell-off in the shares in anticipation of the resulting stock dilution. Currently, the stock is down about 8%. What stock dilution, you ask? Well, once those 10.7 million shares hit the market, they're going to dilute existing shareholders out of about 5.5% of their interest in the company, meaning that each share outstanding will have a smaller claim on the firm's total profits -- and reducing each share's value accordingly.
And the good news: If the batch of new shares fetches even $200 million, that will go a long ways toward filling in the $900 million-deep debt hole that Nuance has dug for itself with its acquisition spree.
Is Nuance some gradation of a "sell," or a clear and unambiguous buy? Watch as two Fools duke it out over this question in Dueling Fools: Nuance.