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May 14, 2009

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

Atlantic Yards Report

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.

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NoLandGrab: That decline of "only" 16% represented the largest one-day drop in FCE-A shares in months. And buyers aren't going to be lining up to buy new shares at $6.60 each if the market is being made at $6.30.

Posted by eric at May 14, 2009 10:46 PM