For example Simon also sold nearly 6 million shares in late 2012 on behalf of Melvin Simon Family Enterprises Trust. One sentence in the prospectus told the entire story: “We will not receive any proceeds from the sale of the shares offered by the selling stockholder.” This transaction wasn’t nearly as desirable as the previous one.
There are other industries where issuing shares is a normal part of business. For example limited partnerships and business development companies (BDC) both frequently issue new shares to build their businesses. Buckeye Partners recent issuance was to pay down debt it accumulated from recent expansion efforts. A BDC might use the money raised from a stock issue to lend out more money to small and middle market companies or pay down debt it took on to do that same thing.
No Easy Answer
The stock market tends to have knee jerk reactions to things, and selling more stock is right up there. In fact, many limited partnerships see their shares slump on such news only to recover when investors regain their senses. So, from an investors standpoint, you need to understand why the new shares are being issued and decide if it’s a good reason or a bad thing. Then act, but not before.
The article Issuing More Shares: Good or Bad? originally appeared on Fool.com and is written by Reuben Gregg Brewer.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.