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Investors in Groupon (NASDAQ:GRPN) have had little to cheer in recent years, as this discount marketplace company has seen continued deterioration in both the company’s fundamentals and its outlook. Today, GRPN stock dropped another 40%, partly due to continued deterioration in the company’s outlook and fundamentals following its earnings report. Management issued disappointing guidance, leading some investors to simply look elsewhere for value in this space.
Additionally, Groupon announced that its board has approved an $80 million fully backstopped rights offering for shareholders. These two announcements appear to be providing the crux of the issue for investors today.
Let’s dive into why that’s the case.
GRPN Stock Plunges Following Earnings and Rights Offering
According to the offering details:
“The Rights Offering is fully backstopped by Pale Fire Capital SICAV a.s. (the ‘Backstop Party’), an entity affiliated with Dusan Senkypl, the Company’s Interim Chief Executive Officer and a member of the Board, and Jan Barta, a member of the Board. The Backstop Party has committed to (i) fully exercise its basic subscription rights prior to the Expiration Date and (ii) fully purchase any and all unsubscribed shares in the Rights Offering following the Expiration Date at a price of $11.30 per share and on the same terms and conditions as other rights holders.”
Now, given that GRPN stock closed yesterday at $13.54 per share, a $2.24 discount for insiders seems to be a bit extreme. While discounts are often provided in order for such offerings to be filled by existing shareholders (there often needs to be an incentive to buy more shares, and the dilutive effect of issuing more shares may naturally lead to a lower price anyway), it’s generally not a good sign when insiders issue such a low exercise price, as it may send the signal they think the stock is overvalued.
Given how rapidly GRPN stock has declined (now trading around $8.50 per share), it seems increasingly unlikely shareholders will take the company up on its offer of buying shares on Nov. 20 at the prescribed $11.30 price, sticking the company’s CEO and board member with this $80 million investment. Accordingly, whether today’s price action is evidence of investors losing their patience with Groupon’s management team or not, it’s clear that investors aren’t happy, and they’re speaking loudly with their wallets today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.