RE: Bought deal (not pp): the perilsFrom CBC
Underwriters lose millions on CAE share issue
Last Updated Tue, 30 Sep 2003 11:27:33
MONTREAL - The underwriting syndicate that helped flight simulator maker CAE raise $175 million through a recent offering of shares now finds itself holding shares that are worth far less than what they paid for them.
The investment banks underwriting the offering bought the entire 26.6 million shares CAE was selling. The purchase was a "bought deal". That's where one or two underwriters buy an entire issue and then resell the shares to the public.
The share offering, which closed Tuesday, was priced at $6.58 a share.
At the time the offering was announced on Sept. 11, that seemed like a good deal, as CAE shares closed on Sept. 11 at $6.72.
FROM Sept. 26, 2003: CAE shares fall on loss of $800 million U.S. Army contract
But last Friday, CAE revealed that it had lost out on an $800-million US training contract with the U.S. Army. CAE shares fell dramatically on that news. In Tuesday morning trading, CAE shares were at $5.13.
At $1.45 a share below the offering price, that means the underwriters have a paper loss of $38.57 million on the 26.6 million shares they've bought, because they cannot sell them above the current market price.
At this point, the underwriters (who haven't been named) have little choice but to park the shares in their own corporate accounts and wait for the stock price to recover to at least $6.58.
Under terms of the original offering, the underwriters have the option of buying an additional 2.66 million shares at $6.58 each until October 30. It's a safe bet that this option will not be exercised unless CAE shares stage a dramatic recovery in the next month.
Written by CBC News Online staff