Friday, March 13, 2015 4:42:42 PM
"After the initial public offering (IPO) of a given company, an additional offering of stock for sale, which increases the number of shares outstanding in that public company.
But why do companies offer this additional stock?...
Simple really. They need more money. to reduce existing debt, or to fund expansion or acquisitions or, in some extreme cases, it's a last-ditch effort to save the company from failing.
If big money managers and analysts like the explanation given, for example for a business expansion or to fund further research and development in a high-growth area, then the stock price could actually go up on the news of a secondary offering." The reason it could go up is because the perception of the market reflects the fact that the company would then have the necessary funding to execute the business plan and there are good prospects going forward with the necessary capital through such an action. Of course the opposite can be true as well if the prospects are really bleak. (http://www.stockhomework101.com/275.htm)
And as a side note, I would observe that ERHC is not the only company going through some of this angst related to capitalization and tough times in the oil patch. See this link about Afren's problems (note mention of dismissal of CEO and COO in article): http://www.proactiveinvestors.co.uk/companies/news/78234/afren-agrees-rescue-deal-with-lenders-but-shareholders-face-major-dilution-78234.html?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=7163-331334-Proactivity+-+13%2F03%2F2015
Or alternately check out this article. It profiles a company that recently failed to successfully partner with other firms through farm outs to assure adequate funding in NZ: http://www.proactiveinvestors.co.uk/companies/news/78225/kea-petroleum-surrenders-mercury-after-farm-out-process-fails-78225.html?utm_source=Sign-Up.to&utm_medium=email&utm_campaign=7163-331334-Proactivity+-+13%2F03%2F2015
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