RE: Article Worth Reading For Newbies19 Jul 2023 08:45
Fusion Antibodies, FAB, prices rights issue at 84% discount - shares drop 75%
A rights issue at an 84% discount is a rare and unusual thing. But needs must at times.
Fusion Antibodies (LON: FAB) shares are down 75% in London today. This is not a happy time for shareholders but then it's also not a happy time for the company. They had to launch a distress rights offer at an 84% discount. Which is one of those things that really will crash a share price.
The most obvious reason for such a share price crash is simply that there are going to be many more shares around. Therefore each one will be worth less - fairly basic economic insight there. But there's more to it than that. For the reason for a stock issuance, a rights issue, at such a discount also needs to be considered.
Effectively, Fusion was out of money. That's the reason for the extreme discount.
We first got the early news about this back in March, when there was a profits warning. That's what caused that drop from 50p to 30p in a few days on that chart. Effectively, the news was that trading conditions are hard, revenues won't be up to expectations, basically, we're not doing very well. Well, such things happen.
Sadly, matters did not get better. Today's announcement says that things are worse than that. To the point that the non-executive directors are now all working for free, the executive ones have accepted changes (ie, lower amounts) in their incomes. Cash preservation is the order of the day.
Of course, once news of this gets out then it's going to be very difficult to raise the capital to keep the company going. So, organise the rights issue - at the massive discount - and release the news at the same time as the rights issue. The stock was at 31.5 p last night, the rights are priced at 5p. That's just the discount needed to get the issue away and so recapitalise the company.
As to what happens next. Well, there's a retail element to the offer as well as the already settled institutional one. The share price is still well above the right price, so we'd expect the rights to be taken up. But it's possible they won't be and if they're not then that will be another significant downward pressure on the FAB share price.
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