Image source: Getty Images.
Continue Reading Below
Shares of Lantheus (NASDAQ: LNTH) were down almost 20% at 3:10 p.m. EDT Friday after the company announced Thursday after the closing bell that it plans to sell 5.2 million shares in a secondary offering.
Lantheus, which makes diagnostic medical imaging agents, says it will use the proceeds from the stock offering to pay down approximately $55 million of the $365 million it owes on a senior secured loan.
The deal hasn't priced yet, but with the shares now trading at less than $8 per share, selling 5.2 million shares wouldn't net Lantheus $55 million, so it would have to use some of its current cash if it wants to make that large a pre-payment on its loan. The company ended the second quarter with almost $55 million in the bank, and it's cash flow positive, so kicking in a little of its own nest egg shouldn't be too difficult.
Continue Reading Below
Lantheus' share price fell on the news because, of course, after the secondary offering its current shareholders will own a smaller piece of the pie. The fact that the price of the secondary offering hasn't been disclosed yet also isn't helping. If institutional investors were interested in snapping up shares of the company, Lantheus' investment bankers could have gotten the deal done before the market opened today.
Lantheus has been trading well above the $6 price itIPOed at last year, so selling additional shares seems like a good move by management. Sure, current shareholders will own less of the company after the offering, but paying down debt will save it money it would have otherwise burned on interest.
As they say, "raise when you can, not when you have to." And Lantheus certainly didn't have to. The company isn't required to pay off a majority of the debt until 2022.
A secret billion-dollar stock opportunity
The world's biggest tech company forgot to show you something, but a few Wall Street analysts and the Fool didn't miss a beat: There's a small company that's powering their brand-new gadgets and the coming revolution in technology. And we think its stock price has nearly unlimited room to run for early in-the-know investors! To be one of them, just click here.
Brian Orelli and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.