A significant shareholding is being unloaded to the public.
Many investors were unwilling to take a bite of Chewy (CHWY -4.34%) on the last trading day of the week. The next-generation pet care supplies company saw its stock price erode by more than 4% on news of a large-scale divestment by its largest shareholder. Chewy’s decline on the day was far more pronounced than that of the bellwether S&P 500 index, which slid by only 0.2%.
A big sale at a discount
After market close on Thursday, Chewy announced that the shareholder was unloading just under 16.7 million shares of the company’s class A common stock. That investor, an affiliate of funds advised by investment management firm BC Partners Advisors, is selling those shares to the public at a price of $30 apiece. As often happens in such circumstances, investors reacted to this news by trading the stock down to around that level.
Chewy added that the selling stockholder has granted the sale’s underwriter, white-shoe investment bank Morgan Stanley, a 30-day option to purchase an additional 2.5 million shares.
The company stressed that it will earn no proceeds from the offering, as it is not the selling party. Its class A common stock is the equity traded on the New York Stock Exchange; its class B shares hold greater voting power and are transferable to A shares.
Keep your eye on the ball
Chewy added that it had roughly 143 million shares of class A stock outstanding, so the current sale comprises at least 11.7% of that amount (depending on whether Morgan Stanley exercises its option, and to what degree). So that rather discount offering immediately impacted the share price. Investors shouldn’t be too concerned about this, though, as the company’s fundamental performance will have more of an impact on the stock’s trajectory than any shifts in institutional shareholding.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.