Cited in: WSJ CFO Journal
Stock-Market Frenzy Offers Some CFOs a Chance to Cash In. However, tapping the equity market can take time and present risks
The recent surge in some company stocks are providing finance executives with a sudden window of opportunity to tap new sources of funding. But not all of them are likely to cash in, as it takes time to prepare an equity sale, and businesses risk raising the ire of regulators if the share price crashes after a fundraising round.
Corporate advisers say more companies have asked about how to prepare for a potential equity sale or another fundraising event in recent weeks as stock prices went up.
“Management teams are looking at where the stock is trading and seeing this as a way to infuse capital into their company,”
said Hala Elsherbini, senior managing director at Three Part Advisors LLC, an investor relations firm.
Some already have tapped the opportunity. Power Plug Inc., a hydrogen fuel-cell company that saw a roughly eightfold rise in its stock price over the past six months, on Tuesday said it was planning to raise about $1.8 billion by selling stock, about $300 million more than initially planned. AMC Entertainment Holdings Inc. this week raised more than $300 million in an equity sale. On Wednesday, its share price more than tripled.
Individual investors are piling into companies that many once saw as a poor bet. Shares of GameStop Corp. , the videogame company, rose more than 130% Wednesday. Other stocks, including those of BlackBerry Ltd. , Bed Bath & Beyond Inc. and Eastman Kodak Co. also saw big gains Wednesday. But beyond this week’s surge in certain stocks, markets have been elevated in recent months after the Federal Reserve took aggressive action last spring by lowering interest rates to near zero and restarting bond-buying and other programs to counter the economic slowdown caused by the coronavirus pandemic and related lockdowns.
Still, it takes time for finance chiefs to prepare the paperwork for a fundraising event, even though there are ways to speed up the process. Companies can file a so-called shelf registration for securities they intend to issue later and don’t have to do an additional filing when they actually want to raise cash. Those securities sales can be executed in the space of days or less, allowing companies to take advantage of a positive market sentiment.
“Companies with shelf registrations have been updating these,”
Ms. Elsherbini said, referring to some of her company’s clients.
"But, there are reputational and liability risks for executives, especially in cases when the stock price crumbles after a financing event, potentially hurting individual investors"
said Jonathan Neitzell, founder at Anduril Partners, an investment advisory firm.