A secondary public offering, or SPO, is when a company that is already publicly traded sells additional stock to the public to raise additional capital. A primary benefit of investing in SPOs is that such investments often come with built-in gain.

Offering Details

Announced: March 18, 2010. Offering Price: $.44. Closed: April 2, 2010. Recent High: $1.38.



First Came a Subscription Rights Offering

The PremierWest Bancorp (PRWT) offering was unique in a couple of ways. The first was that the bank initially tried to raise funds only through a subscription rights offering. They announced on February 1, 2010 that any stockholders as of December 15, 2009 would be allowed to buy 3.3 shares per share owned on December 15, at an offering price of $.44.

The bad news: I happened to be an owner of PRWT stock on February 1, 2010. This meant that when the stock plummeted from a $1.00 to around $.59 that I suffered a hefty loss (I was able to jump out at $.75). Lesson to take from this – don’t buy stock in a company that has hinted that it intends to do an offering sometime in the near future (though you can sometimes profit by shorting such stock).

More bad news: I wasn’t an owner of PRWT stock on December 15, 2009. This meant that I was not going to be able to participate in the subscription rights offering, so I had no easy way to make up my lost money. I watched enviously as the subscription rights offering closed and the stock sprung up to $.90 just a few days after closing. Had I been paying better attention, I would have bought some stock on the open market prior to the close of that offering. Though I wouldn’t have gotten the built-in gain in such a situation, I still would have made almost 100%.



Then Came a Secondary Public Offering

Still wishing I could have participated in the PRWT subscription rights offering, I watched with interest as the bank announced on March 18, 2010 that it had’nt raised enough money in the subscription rights offering and thus would be doing an SPO starting immediately and at the same offering price.

How do you think the market reacted to the announcement? PRWT’s stock plummeted immediately back down. You really would have had to sell fast to keep your profits from the subscription rights offering. This time the stock fell even lower than it had before, but over the next two weeks it seemed to hold a good 10% or more above the $.44 offering price.



Victory Lap

For those of you who participated in the PRWT SPO, you know it was a home run. It made over 200% in a month. I personally made over $34,000. But what was really great about the PRWT offering was that it was a predictable home run. The way the stock reacted after the close of the subscription rights offering was proof that there were investors standing at the ready to bid the stock up. And the SPO closed at a really good time – about a month before the earnings releases in April which would spike the stock price up anyway.

As you recall, my recommendation on PRWT was to buy and to buy big. For investors who were not following SecondaryPublicOfferings.com at that time, don’t fret. The recession is not over and there will be plenty of more such opportunities during 2010. Will any be as predicatable or as lucrative as PRWT? That has yet to be seen.