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Magellan share price down 7% after completing $275 million institutional placement

James Mickleboro
Investor holding money bags of shares and dividends

The Magellan Financial Group Ltd (ASX: MFG) share price has dropped lower after returning from its trading halt this morning.

In early trade the fund manager’s shares are down 7% to $55.58.

Why were Magellan’s shares in a trading halt?

Magellan’s shares were placed in a trading halt on Tuesday so that it could undertake a capital raising. This capital raising has now been completed, with the company raising $275 million via an institutional placement.

According to the release, approximately 4.98 million new Magellan ordinary shares will be issued to institutional investors at a price of $55.20 per share. This represents a 6% discount to the dividend adjusted last traded share price of $58.72 on August 12 and a 4.5% discount to the dividend adjusted five-day VWAP of $57.78.

Magellan CEO, Brett Cairns, said: “The Placement was strongly supported and we are delighted with the result. We look forward to continuing to deliver long-term value for our shareholders.”

Why is Magellan raising capital?

The funds raised under the placement are to be used largely to meet the costs associated with the newly announced Magellan High Conviction Trust initial public offering.

In addition to this, approximately $50 million will be used to support a secretive new retirement product which is currently under development. No details have been revealed, other than it is not an annuities-style offering like Challenger Ltd (ASX: CGF) provides.

The remainder will be used to seed other investment strategies and to strengthen its balance sheet to provide significant flexibility to continue to invest in future growth opportunities.

The company’s chairman, Hamish Douglass, explained: “The $275 million placement will strengthen Magellan’s balance sheet and will provide us with significant flexibility to continue to invest in growth opportunities. Every dollar we pay upfront to people investing additional capital into ASX listed funds like the Magellan Global Trust or the Magellan High Conviction Trust has resulted in materially more than two dollars of shareholder value to date. We have only scratched the tip of an iceberg on the potential of our partnership thinking and I would envisage us making more investments in the future.”

Elsewhere on the market today, the CSL Limited (ASX: CSL) share price has climbed 6% and the Computershare Limited (ASX: CPU) share price has risen 4% after the release of their respective full year results.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia has recommended Computershare. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019