Frequency Electronics, Inc. (NASDAQ:FEIM) experienced a notable decline in its stock price after announcing an underwritten public offering totaling $100 million in common shares. The company reported a 10.2% drop in after-hours trading following the disclosure.
Under the terms described by the company, Frequency Electronics will offer $62.5 million of its common stock. In addition, two selling stockholders - Edenbrook Value Fund, LP and Edenbrook Long Only Value Fund, LP, which the company identified as affiliates of board member Jonathan Brolin - will put forward $37.5 million of shares for sale.
Frequency Electronics also indicated that underwriters will have a 30-day option to buy up to an additional $15 million of shares at the public offering price, less underwriting discounts and commissions.
The company said it intends to use the net proceeds from the shares it sells to pursue growth initiatives. Specifically, Frequency Electronics stated that funds are expected to support capital expenditures, working capital and other general corporate purposes. The company also made clear that it will not receive any proceeds from the portion of the offering consisting of shares sold by the selling stockholders.
Morgan Stanley is serving as the lead book-running manager for the offering, with Craig-Hallum acting as book-running manager. Frequency Electronics cautioned that the offering remains subject to market conditions and other factors, and that there is no assurance as to whether or when it will be completed or what the final size or terms might be.
Frequency Electronics supplies precision time and frequency generation technology for commercial and U.S. Government satellites, Command, Control, Communication, Computer, Intelligence, Surveillance and Reconnaissance (C4ISR) systems, and Electronic Warfare systems.
Clear Summary
Frequency Electronics announced an underwritten public offering of $100 million in common stock, split between $62.5 million of company shares and $37.5 million sold by funds affiliated with a board member, and the stock fell 10.2% in after-hours trading. Underwriters may purchase an additional $15 million of shares within 30 days. The company plans to use net proceeds from its portion of the offering for growth, capital expenditures, working capital and other corporate needs, while sales by the affiliated funds will not benefit the company financially. The offering is subject to market conditions with no guarantee of completion.
- Key points
- The announced offering totals $100 million in common stock, with the company selling $62.5 million and affiliated selling stockholders offering $37.5 million.
- Underwriters have a 30-day option to buy up to $15 million more in shares at the public offering price, minus underwriting discounts and commissions.
- Proceeds from the company's share sales are earmarked for growth-related uses including capital expenditures, working capital and general corporate purposes.
- Sectors impacted
- Aerospace and satellite suppliers, given the company's role in commercial and government satellite systems.
- Defense and government systems, since Frequency Electronics serves C4ISR and Electronic Warfare applications.
- Public equities and capital markets, due to the equity offering and its immediate effect on the company's share price.
- Risks and uncertainties
- The offering is subject to market conditions and other unspecified factors, and there is no assurance it will be completed or that the final terms will match those described.
- The company will not receive proceeds from the portion of the sale executed by the selling stockholders, meaning some sales will not fund the company's stated growth initiatives.
- Reliance on underwriters' option to purchase additional shares introduces uncertainty about the ultimate size of the offering.
Transaction parties
Morgan Stanley is acting as lead book-running manager, with Craig-Hallum as book-running manager on the deal. The selling stockholders are identified as Edenbrook Value Fund, LP and Edenbrook Long Only Value Fund, LP, affiliates of board member Jonathan Brolin.
Note: The company description provided in its announcement states that Frequency Electronics offers precision time and frequency generation technology for a range of commercial and U.S. Government platforms, including satellites, C4ISR systems and Electronic Warfare systems.