Why would the price of a stock remain steady after a private placement announcement?
I'm a novice investor and ran across something that I don't understand. I own shares of Aureus and recently found this notice;
On June 15, 2016, Aureus announced a private placement (the "Private Placement") with MNG Gold. The Private Placement to MNG Gold consists of two tranches.
-- Tranche 1: 59,533,674 common shares at a price of 3.21p
(US[CO].045302)(approximately Cdn[CO].058447) per common share and
a promissory note in the aggregate principal amount of
US,303,006 (the "Promissory Note"), for aggregate gross
proceeds of US million (Cdn.3 million); and
-- Tranche 2: 331,111,209 common shares at a price of 3.21p
(US[CO].045302) per Share for aggregate gross proceeds of US
million (Cdn.3 million), to be completed upon clearance by
the Toronto Stock Exchange ("TSX") of certain personal
information forms.
So I understand that this will basically double the amount of outstanding shares. Wouldn't this generally cause prices to drop? What factors would hold a price steady when there is dilution?
Edit: Additional information purchase is at about 6 cents per share, current sell price is 8 cents per share. As a part of Tranche 2 CEO, CFO, and half of directors being replaced. Maybe management shakeup has buoyed confidence to make up for poorer fundamentals.
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On the contrary, is this is a pure money-raising event and no additional information is coming to light, we would expect the price to remain exactly the same. The value of the company increases by the same percentage as the number of shares does.
Example: 100 outstanding shares at each (market cap is 00). New investor invests 0 and receives 50 newly created shares. Now the company is worth 00+0=00 and there are now 100+50=150 outstanding shares. 00/150= per share.
The reason prices change when additional equity is raised is that investors may treat this as a news event. That is, they ask things like "Why is the company raising money in the equity market? Do they know the stock is overvalued?" That would cause the stock to drop. Alternatively, if the market thinks the company is raising money to fund a new and profitable project, they may raise their expectations and increase the stock price.
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