Freightways SPP Oversubscribed
Freightways recently raised $45,000,000 capital in a placement to institutions at a significant discount to the market price. They also offered non-institutional investors a Share Purchase Plan (SPP) at the same price, limited to an aggregate of $5,000,000. Each small investor was allowed to subscribe for a total of $12,500 worth of shares at the same placement price. When the SPP was announced I took a look at the numbers. In the 2008 annual report there were a total of 6,423 shareholders listed. I did some basic calculations:
| Aggregate pool | $5,000,000 |
| Number of share-holders | 6,423 |
| Pool available per share-holder | $778.45 |
| Issue price | $2.44 |
| Shares available per share-holder | 319 |
These figures imply an assumption by the directors that most small investors would not participate in the SPP. Otherwise they would either allocate a greater pool to the SPP or wouldn’t allow investors to subscribe for $12,500 of new shares. I suspected that the SPP would be over-subscribed.
Freightways has just announced that it was oversubscribed: by 1,040% !!! The total amount provided by small investors was $57 million, which is more than the total capital raising combined. This shows that it was completely unnecessary to dilute the share-holdings by giving institutions such a great deal. Essentially the institutional investors have received a great bargain at the expense of small investors. It would be more equitable in this situation to have done a renounceable rights-issue. Alternatively accepting a variable sized pool for small investors, similar to Xero’s SPP, would have been more equitable.
In conclusion, I think the directors need to provide some good answers as to how this was decided and executed.
Disclosure: I personally have a small shareholding in Freightways.
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By Shane Legg, May 29, 2009 @ 4:28 am
Um, I’d be surprised if there were good answers to this… I guess they will just go “Ops, we didn’t realise that so many small investors would be interested.”
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By Share Investor, May 29, 2009 @ 10:57 pm
Yep, I had 8200 shares and needed around 1200 to avoid dilution. It seems I might be getting around 500 according to their press release.
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By Kelvin Hartnall, May 30, 2009 @ 6:18 pm
I have a few more shares so needed about 1720 shares to avoid dilution. I applied for the maximum amount under the SPP, though based on Friday’s announcement we will be scaled back to 449 shares which is the maximum number allocated under the SPP. So not even close to avoiding dilution. Also, I’ll have $12,500 tied up for weeks with the net effect being the acquisition of $1,095 worth of shares.
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