Friday, August 28, 2009

Select Comfort shareholders vote down absurd giveaway(SCSS)

AlphaNinja - Yesterday, Select Comfort shareholders voted down a proposed equity issuance to Sterling SC Investors.

Now I admit the company is in dire straights in terms of financing - bankruptcy is a real concern if they can't obtain some $$$$$. The debt markets would be prohibitively expensive for them,given their balance sheet's lack of quality. So that leaves the equity market as the last resort for "save your a$$" financing. For equity holders this is key -->> if your stock is trading at low levels because the market thinks the company is going bankrupt, then hugely dilutive (issuing tons of new shares reduces your stake) stock issuance, IF IT TAKES BANKRUPTCY off the table, is a good thing. That said, the terms of this deal were simply offensive. With the stock trading at just under $3, the deal would have sold shares to the new investors for just 70cents per share. Granted, the deal terms were worked out while the shares traded lower, but shareholders were right to turn this down.

No comments:

Post a Comment