$ALT the FOO

I have been hearing a lot about $ALT's Follow-on-Offering (FOO), but I don't really understand its nature, whether its good or bad for shareholders. The only thing I see is that since this "rumor" has been released, the price of $ALT has been falling.

And so I decided to ask Mr. Google about $ALT the FOO. Join me in my inquiry...

The first site that appeared in my search is this one:

www.cnbc.com/2015/04/17/cramer-secondary-offerings-unexpected-sign-of-strength.html

It's from CNBC...

The title names FOO as Seconday Offerings...

The key insights from the above article are the following:

• FOO is bad for shareholders according to conventional wisdom

• FOO will bring down the price of the stock (Exactly! This is what's happening to $ALT! No good news yet about FOO. That's sad...)

• Thinking of FOO as bad news is the old way of viewing the market (Oh! There"s a good news after all!)

• FOO could be a signal of management's acumen and effort to unlock the company's value in innovative ways ( Now this is good news! How I wish this is true in $ALT's case)

• Next Jim Cramer is talking about FOO in the environment of lower rates, which he considers good. How about now? The Fed has just recently raised rates. And $ALT will be having a FOO. Is this still good? I missed this one!

• FOO in times of lower rates boost the company's balance sheet and could result into share price rally.

• The reduction in debt if FOO's proceeds is used for debt payment will cause rating agencies to upgrade their ratings of the company

• FOO's proceeds if used in business expansion will improve the company's earning potential and EPS (This is precisely Mr. Navasero's goal!)

• FOO "might be an extremely shareholder friendly move."

The second link is from investopedia.com

www.investopedia.com/ask/answers/07/secondary_offering.asp

The article seeks to answer the question why prices fall as a result of FOO. This is exactly my question...

These are the insights from this article:

• Original investors don't like FOO for it reduces their level of ownership as the shareholders base expands. This is described as dilution.

• Or the other way of saying it is that as a result of FOO, the EPS value of initial shareholders shrinks and that is why they don't like it (I am now thinking of Sarangani and Papa Sec as original investors that don't like $ALT's FOO that's why they are selling it down).

• The only way to counter such negative sentiment on the stock price as a result of FOO's dilutive impact is a strong justification for the issue of new shares in the first place (I think $ALT has that strong justification. It so happens that perhaps with inside information, both Papa Sec and Sarangani don't believe it)

The third link is from this site:

www.loncarblog.com/secondary-offerings

This article is exactly what I'm looking for. It tells us about FOO from biotech sector, which precisely $ALT belongs to.

These are the key insights:

• FOO is integral in biotech sector for the sector is so risky and capital-intensive

• Shareholders must know FOO's impact on capital structure and its future implications on their holdings

• FOO is associated to the movement of a "hot stock" and is usually perceived as either a "scam" or the end of the company. "Often times the opposite is true." (How I wish the same thing is true with $ALT)

• If you understand that FOO is issued from the company's position of strength, then there is nothing to worry. In fact, the more the price goes down, the greater your returns.

• We know that FOO is issued from the company's position of strength if the proceeds is used to fuel growth (It's true again in $ALT's case). FOO in this case should not be viewed as dilution, but as a supplement to investment.

• FOO that comes out of nowhere and without major company events should be viewed with suspicion

• FOO that comes from a company that is trading at or near new lows is a red flag (This is also true with $ALT. I am now getting confused)

• Biotech company's lower FOO price is another red flag

The final article is from wikipedia:

https://en.m.wikipedia.org/wiki/Follow-on_offering

It distinguishes between secondary offering and FOO/FPO...

Key Insights:

• There are 2 types of FOO: dilutive and non-dilutive

• If new shares are issued, this is dilutive. If no new issues are created, this is non-dilutive

• FOO is preceded by prospectus similar to IPO

• In contrast to IPO, FOO is the "subsequent public contribution" and "the public issue of shares for an already listed company."

This article answers many of my questions about FOO...