Toronto bank towers and skyline Nov. 10, 2010.Moe Doiron/The Globe and Mail
That math doesn't look pretty for Bank of Montreal after a bought deal gone badly on behalf of MDC Partners Inc. founder Miles Nadal.
The transaction was announced Monday, when shares of the advertising holding company closed at $25.02 (U.S.) on the Nasdaq. BMO bought 3.5 million shares from Mr. Nadal for $23.14 apiece, or about $81-million, according to a pricing supplement for the bought deal transaction filed Thursday evening, as the transaction was getting set to close. The plan was to resell that stock to investors.
However, the market reacted strongly to the news that Mr. Nadal was selling about 40 per cent of his stake in the company. The stock plunged.
Somebody lost a few million dollars, based on the price disclosed Thursday evening. It's not Mr. Nadal, as he will get his money from BMO. The loser was either BMO if it didn't have orders for all the stock, or investors who did buy it at the offering price on Monday evening when the deal was launched. That's because the next day the stock dove below $22, and it has closed below that level all week. At last look, it was trading at $21.35.
Analyst Rich Tullo at Albert Fried & Co. called the offering "botched" and said that any talk that the offering had been oversubscribed was clearly not the case. "Our view is subscriptions that are claimed 13 times oversubscribed and trade down are 11 per cent are not oversubscribed."
Even so, Mr. Tullo said in a report published Tuesday that the drop is an opportunity. He said he would buy the stock "because long term fundamentals are still in place." He has a $35 a share target on the stock.
A spokesman for BMO did not immediately respond to a request for comment.