Pacific Ethanol, a company we're mentioned before
because they're building giant ethanol
plants around the western side of the United States, sold on Friday five and a half million shares of its stock to private investors for about $5 less each than the $31.52 stocks were valued at Thursday. The company also sold the rights to buy almost three million shares at $31.55 in six months. The stock market
didn't like this at all on Friday and the price of the shares dropped $3.11 that day. The sale of stock to private investors like this is called, interestingly, a PIPE deal, which stands for Private Investment in Public Equity. Seeking Alpha
has a detailed report on the sale, and says, "The CEO/CFO should be fired for even thinking about using a PIPE deal to raise money. PIPE deals have a well deserved reputation for being very dilutive and are also a sign that the company is desperate for cash. As such they tend to cause a rapid decline in the stock price - much worse than that caused by announcing a secondary public offering."
The article also mentions three officials in the company resigned at the end of April and explains further why all of this may mean that Pacific Ethanol could be in trouble.
[Source: Seeking Alpha]