The good news for VeraSun (s VSE) on Thursday was that, early in the morning, its stock was up 42 percent from Wednesday’s close.
Now the bad news. That 42-percent jump was just a bounce from one of its stock’s worst days ever. On Wednesday, VSE plummeted 73 percent to $1.41 a share. What’s more, by the end of Thursday’s trading, the stock gave up all those early-morning gains, closing at $1.46.
Even worse for VeraSun: the company has nobody to blame but itself.
First, VeraSun notified investors that its attempt to manage volatile corn prices through complex hedge positions backfired horribly, forcing it to buy corn at prices that were well-above the market rates. So, the company warned, it would face a third-quarter loss between $65 million and $103 million, or between 40 cents and 65 cents a share. Wall Street had been expecting a loss, but nothing nearly that big.
And to celebrate this piece of dismal news, VeraSun decided to sell 20 million more shares. That will dilute the 159 million shares already outstanding — assuming there is any appetite for more VeraSun shares in this bear market.
The result was an absurdist case study in how to displease investors. Investors, of course, get to say what your company is worth, so there can be painful consequences if you make them unhappy. VeraSun’s value is $230 million, about a quarter of what it was when the sun set on Tuesday.
One of the few winners in this deal is UBS, which along with Morgan Stanley is a lead underwriter. Some of the proceeds from the offering will go to pay down a credit facility that VeraSun has with — that’s right — UBS. So VeraSun is paying UBS to help it repay UBS.
Also interesting to note is that VeraSun’s CEO, CFO and other insiders may spend up to $25 million to buy the new shares. At the stock’s current price, that is enough to pay for most of the offering. If VeraSun does rebound, it could prove to be a shrewd move on the insiders’ part. But that assumes things will turn around for VeraSun, which right now seems unlikely.
Update: VeraSun is back up 20 percent Friday after it suspended the offering, but hired Morgan Stanley to advise it “in light of strategic interest expressed by multiple parties.” So a takeover is becoming a more likely scenario.