Thursday, May 14, 2009

Forest City Ratner mints money with new shares, stock declines only 16%

Morningstar, which had once called Forest City Enterprises stock worthless but then raised its Fair Value to $4 three weeks ago, today upped its Fair Value estimate to $5.50, even as the developer announced it would sell 45.5 million new Class A shares at $6.60 each.

Gross proceeds will be about $300 million, or, if underwriters buy an additional 6.8 million shares, $345.3 million.

The stock closed at $6.30, down 16.11%, a hit to current shareholders but certainly a risk worth taking for the company, given its need to raise money to pay off debt.

Still, Morningstar issued an analyst's report that said "Forest City's risks outweigh its potential rewards." Analysts tracked by Yahoo are slightly more pessimistic than they were last month and months previous.

NLG tweaks me for not emphasizing that the 16% drop is the largest drop for FCE shares in months. it's a significant drop, sure, but the dilution of Class A shares by 50% could've meant an even greater fall.

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