Whatever.com is already public. It sold twenty-million shares at $15/pop, and now has 120 million shares outstanding.
For better or worse, the company burned through the cash it raised quickly. What? Corporate jets are expensive. And now it wants to raise more money, so it begins to go through the efforts of an add-on offering, more commonly known as a secondary offering. More shares dilute the company, so while it earned a $120 million last year, or a dollar a share, if it sells another 30 million shares to the public, raising cash, and then having a 150 million shares outstanding...if the company produces another $120 million earnings year, it will have only earned a 120 million divided by 150 million, or $0.80 a share. A big come-down from the buck a share they earned before.
So add-ons are great when the money is well-spent. And that whole corporate jet thing really was probably not the way to go.
Related or Semi-related Video
Finance: What is the Investment Company ...129 Views
Finance a la shmoop what is the investment company Act of 1940? well
think of it as the retail investor mutual fund act corruption, scandal, anger
and angst after the Great Depression spurred all kinds of laws designed to [Men sitting on a stone wall]
protect Joe farmer from getting railed again the way he did in the late 20s and
30s the goal of the government wasn't to give investment advice in any way shape
or form but rather to create a trustworthy and level playing field such
that all players in the investment world educated and none would at least have the [Football player investors appear]
opportunity to get a fair deal in one type of investment or another
well the acts of 1933 think IPOs and 1934 secondary trading set in motion the
build and infrastructure of the SEC which regulated more or less everything
in this financial world stocks bonds and other hybrids but then along came this [M.F Industry man walking along the street]
new whiz-bang investment growth engine in the 1930s called the mutual fund
industry which was in part a reaction to the many unschooled farmer retail
investors having lost all their money in the crash well the notion was that for a
relatively small fee they would hire educated college boys to do their [College boy studying]
investing for them so there was born the mutual fund industry and about five
minutes later was born the corruption in the mutual fund industry unclear fee [Mutual fund industry and mutual fund corruption babies appear]
structures, ambiguous commission rates, unfair disclosures for things like when
and how much money could be withdrawn from the funds weird trading spreads and
commissions being given out with no real thought as to what was fair, fair to the
investors and so on all kinds of bad dealings so along came the 1940 act
which then essentially regulated fair and square dealings in the mutual fund
biz so that the whole experience of not necessarily sophisticated investors [Man throws stack of money at market]
profiting from the stock market was mutually fun for more or less
everyone who dove in so yeah in a nutshell that's the major financial
legislation of the 30s and 40s in three acts Shakespeare couldn't have done it
better and hopefully your investing is not a tragedy [Shakespear appears]
Up Next
What is a secondary offering? After a company has its IPO, there is often a lockup period of stock held by directors, institutions and other “ins...
What is a greenshoe option? When Morgan Stanley launched Facebook’s IPO, they had humongous demand. The demand was so great that Morgan Stanley t...
What is the 1934 Securities Exchange Act? The 1934 Securities Exchange Act brought about the SEC, or the Securities Exchange Commission. This act,...