Why Shares of MeetMe Inc. Tumbled Today

What happened

Shares of social networking company MeetMe (NASDAQ: MEET) slumped on Friday after the company announced a plan to sell new shares of stock at a sizable discount to Thursday's closing price. At 11 a.m. EST, MeetMe stock was down about 12%.

So what

MeetMe plans to offer 8 million shares of its common stock to the public at a price of $5 per share. The underwriters of the deal have a 30-day option to purchase an additional 1.2 million shares. If the maximum number of shares are sold, MeetMe's outstanding share count will increase by about 14%.

Image source: MeetMe.

MeetMe stock closed at $5.81 on Thursday, putting the offer price about 14% below that level. The offering is expected to close on or around March 15, subject to customary closing conditions. Canaccord Genuity Inc. and Roth Capital Partners are the joint book-running managers for the deal, with Northland Securities acting as co-manager.

MeetMe plans to use the proceeds from the offering for general corporate purposes. This includes potentially funding a portion of the recently announced acquisition of if(we) Inc., as well as possible future acquisitions.

Now what

MeetMe stock surged following its fourth-quarter report on March 6, giving the company an opportunity to sell shares at a higher price. Investors clearly aren't thrilled about the dilution or the pricing of secondary offering, erasing much of that post-earnings gain in reaction to the deal.

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Timothy Green has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.