Why Mach Natural Resources Stock Tanked Today
Key Points
Institutional investors are unloading 9 million units at a discount to the latest closing price.
The company's float stands at under 60 million units.
The shareholders of energy company Mach Natural Resources (NYSE: MNR) had a trading session to forget on Tuesday. On news of a bulk sale of the company's units by several institutional investors that was priced below market, the stock sank by almost 11%.
9 million reasons for concern
Mach, which is active in various aspects of the upstream oil and gas industry, announced the pricing of that secondary unit sale on Monday night. Those investors are unloading 9 million units in an underwritten public offering at $13.05 per unit.
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The sale is expected to close on Wednesday, and the sellers -- specifically Vepu, Simlog, and Sabinal Energy Operating -- have granted the offering's underwriters a 30-day option to collectively purchase up to an additional 1.35 million units.
Mach stressed that it will receive no proceeds from the sale, as it is not a selling party.
As is usual in announcements such as this, the reasons for the pricing were not provided. Nevertheless, that $13.05 per unit figure is concerning, as this is well below Monday's closing price of $14.15.
A gusher on the market
I should note that this secondary sale of equity doesn't change Mach's fundamentals, which are historically solid and poised to improve given the current state of the global oil industry (the company, which operates purely in the U.S., should benefit from higher oil prices driven by the Iran war).
That said, 9 million units out of a total float of just under 60 million (according to data compiled by Yahoo! Finance) is a big offering for the market to swallow, even at that bargain price. I'd expect investor sentiment to remain negatively affected by this, at least in the near term.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.