Story
Frequency Electronics Shares Drop After Announcing $100 Million Stock Offering
Summary
The precision technology company's stock fell over 10% in after-hours trading following the announcement of a public offering, which includes a significant sale by existing shareholders.
Shares of Frequency Electronics, Inc. (NASDAQ:FEIM) fell sharply in after-hours trading on Tuesday after the company announced plans for an underwritten public offering of $100 million of its common stock. The news sent the stock down 10.2% as investors reacted to the potential for share dilution and a large sale by existing stakeholders.
Offering Details
The proposed offering consists of two parts. Frequency Electronics plans to offer $62.5 million in shares, while certain selling stockholders will offer an additional $37.5 million. According to the company's statement, these stockholders are Edenbrook Value Fund, LP and Edenbrook Long Only Value Fund, LP, which are affiliates of board member Jonathan Brolin.
Underwriters will also have a 30-day option to purchase up to an additional $15 million in shares. The offering is being managed by Morgan Stanley, serving as the lead book-running manager, with Craig-Hallum also acting as a book-running manager.
Use of Proceeds and Market Impact
AdFrequency Electronics stated it intends to use the net proceeds from its portion of the sale to fund growth opportunities, including capital expenditures, working capital, and other general corporate purposes. The company will not receive any proceeds from the shares sold by the Edenbrook funds.
Public stock offerings can place downward pressure on a company's share price because they increase the number of shares outstanding, diluting the ownership stake of existing investors. The sale of a significant block of shares by an insider-affiliated fund can also be interpreted by the market as a negative signal, further contributing to selling pressure.
Context and Conditions
Frequency Electronics specializes in precision time and frequency generation technology used in satellites, military communications, and electronic warfare systems. The company noted that the offering is subject to market conditions and other factors, providing no assurance as to whether or when the offering will be completed, or its final size and terms.
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