By Dow Jones Business News, September 30, 2013, 06:08:00 PM EDT
By Matt Jarzemsky
J.C. Penney Co. sold Goldman Sachs Group Inc. 84 million shares for $9.36 apiece to raise $786.2 million before
expenses in last week's equity sale, the retailer disclosed in a regulatory filing.
Goldman, in its role as J.C. Penney's underwriter, agreed to buy the entire equity slug and re-offered it overnight to
fund managers between Thursday and Friday's trading sessions for $9.65 a share. Monday's filing made the price the
investment bank paid public for the first time.
J.C. Penney's stock has struggled since the deal, falling 8.8% from the offer price to close at a 13-year low of $8.80
Monday. The deal was set to increase the department-store operator's share count by as much as 44%, diluting investors
who already held the stock.
The stock action gave little window for investors who bought shares in the deal to flip them for a quick profit. About
20 million J.C. Penney shares have changed hands for $9.65 or higher since the start of Friday's premarket trading,
according to FactSet data. Penney's stock traded at a volume-weighted average price of $9.36 Friday and $8.89 Monday,
FactSet data show.
The low price underlines the risks banks and investors face when participating in equity sales run as so-called block
trades, which account for about one-fifth of U.S. equity capital markets issuance, according to Dealogic. Firms managing
such offerings hope to sell the shares for more than they bought them, pocketing the difference as fees. In traditional
equity sales, by contrast, the bank arranges buyers but doesn't buy shares itself.
In this case, Goldman used its balance sheet to buy $786.2 million worth of stock, and unloaded shares for about 3%
more than what it paid.
On average, banks running block trades for U.S.-listed companies this year have re-sold shares for about 1.4% more
than they paid the issuer, according to market data and intelligence firm Ipreo.
If bankers can't immediately place all of the stock in a block trade with investors, they continue to own the shares
and all the risk that goes with them. Even if they can immediately place all of the stock, a sour deal can resonate
poorly with investors if the shares fall afterward.
People familiar with the matter said Goldman had enough orders for J.C. Penney shares to place the entire deal with
investors. A Goldman Sachs spokesman declined to comment on whether the deal left the bank owning the stock.
Write to Matt Jarzemsky at email@example.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
(END) Dow Jones Newswires
Copyright (c) 2013 Dow Jones & Company, Inc.