E*Trade's Largest Investor Trims Stake
Updated to add latest share price, further context on transactions.
NEW YORK (
) --
E*Trade Financial's
(ETFC) - Get Report
largest debt and equity holder, Citadel Investment Group, completed a debt-for-equity conversion this week, along with a sale of common stock that at least one observer says is to be expected.
Citadel sold roughly 85 million shares over the past three days and converted an equivalent amount of debt on Wednesday and Thursday, according to a Schedule 13D filed with the
Securities and Exchange Commission
on Friday.
The large hedge fund manager sold the shares at prices ranging from $1.70 to $2.08, according to the filing. Citadel made gross proceeds from the stock sale of $162.5 million, according to Sandler O'Neill & Partners analyst Rich Repetto.
Citadel said in the filing that it entered into the sale transaction "for the purpose of managing its aggregate exposure" to E*Trade. A spokeswoman referred
TheStreet
to language used in the filing.
At the same time, Citadel also tendered $87.9 million worth of Class A debentures, converting them into 84.9 million shares of common stock at an exercise price of $1.03 per share.
Following the conversions and sales, Citadel held approximately $941.7 million worth of E*Trade's Class A Debentures and approximately166.2 million shares of common stock, the filing said.
Citadel's latest shuffling of the deck of its holdings in
comes as the online broker wrapped up its own "at the market" offering earlier this week, selling a total of 80.2 million shares to raise $150 million. (Sandler O'Neill acted as the agent for the deal.)
E*Trade originally announced a recapitalization program in June, after regulators urged the company to boost capital levels at its floundering bank subsidiary. As part of the plan, debt holders -- including Citadel -- would exchange $1.7 billion worth of debt for equity. A company spokesperson confirmed this latest Citadel transaction falls under that plan.
Citadel's transactions are to be expected, according to Matt Snowling, an analyst at FBR Capital Markets.
He says that, while 85 million shares is a lot of stock to sell, Citadel still has a huge position in the company. "It's understandable and expected at some point that Citadel is going to have to reduce its ownership," he says in an interview.
From a shareholder perspective, "the concern is they're going to start leaking shares out into the market," Snowling says. "It does put some pressure on the stock obviously on the days Citadel is selling, but
the stake also potentially puts a ceiling on where the shares could go with that overhang."
Just last month, Citadel canceled a prearranged trading plan in which one of its affiliates would have sold up to 120 million E*Trade shares. At the end of August, the hedge fund manager's holdings stood at 166 million shares, totaling 14.9% of E*Trade's stock. As of last week, the equity stake was reduced to 10.8%, and, as of Friday's filing, it was down to 9.9%.
The reduction reflects not only Citadel's maneuverings but the dilutive impact of E*Trade's at-the-market stock offering.
E*Trade's stock has been one of the most actively traded stocks this week. Daily average volume for the plast 10 sessions reached 206 million shares, compared to 91 million over a three month period, according to Yahoo! Finance.
Still with all that trading, the stock is essentially flat. It was changing hands at $1.80 in afternoon action, a rise of nearly 3% for the day, but the exact level it closed at on Sept. 14. Friday's volume was more than 121 million.
-- Written by Laurie Kulikowski in New York.
