Monday, December 21, 2009

Roper demonstrates PERFECT timing for an equity offering (ROP, SPY)


Roper Industries (ROP) is massively profitable and sits on $256million in cash. Why on earth would they consider selling shares, a move that usually depresses the stock price? Because they're being added to the S&P500 tomorrow.

In a press release, Roper announced they'll sell 2.3million shares when they get added to the S&P500 tomorrow, using some of the cash to offset indebtedness from a recent acquisition:

"SARASOTA, Fla., Dec. 21 /PRNewswire-FirstCall/ -- Roper Industries, Inc. (NYSE: ROP) announced today that it is commencing a registered public offering of 2,300,000 shares of its common stock. The offering is being made in conjunction with the Company's inclusion in the S&P 500® index, which becomeseffective after trading on the NYSE closes on December 22, 2009.
Net proceeds from the offering are expected to be used to reduce borrowings associated with the acquisition of Verathon, Inc., announced on December 8, 2009."
The reason I like this timing so much is because they're being very shareholder-friendly. This share offering will pump stock into the hands of hundreds of funds that are required to buy shares that get added to the S&P500, as many funds simply replicate the performance of the index.
Based on Roper's market value, it will account for a tiny .04% of the index -->> but those numbers add up quickly. Take the SPY for example, an index fund with $72billion in assets under management. Roper's position in this fund will amount to $28.8million, or purchases of 523,636 shares based on ROP stock -->> that's an entire day's average trading volume for just ONE fund that will have to purchase shares.
I usually consider the boost to shares from inclusion in a new index to be "artificial" gains. But whether or not those gains stick, the increased buying volume is a great source of liquidity to raise capital. Cheers to Roper.
S&P did a study of the effects on a stock from being added to the index. Stocks added to the S&P500 on average beat the general market by 9% in the one year period after the announcement was made. About 4% of the gain happened after the stock was actually added to the index.

Copyright 2009 AlphaNinja

No comments:

Post a Comment