When a bought deal isn't a bought deal
Tim Kiladze
San Gold Corp. has revised its $130-million common share offering that launched last night down to $80-million this morning.
That wouldn't be strange for a marketed transaction. But this was a bought deal, a legal agreement between San Gold and the syndicate of underwriters, co-led by Dundee Securities and BMO Nesbitt Burns, to buy $130-million worth of shares and then sell them to the market.
Typically, when a bought deal is hung-up because investors aren't interested the syndicate will hold on to its shares and then re-issue them in a 'clean-up' deal at a lower price. In this transaction, however, San Gold agreed to sign a brand new bought deal letter, something that usually happens when the deal is upsized. There are also a few rare instances of bought deals being pulled completely if they can’t sell.
San Gold must have been worried about its stock getting hit if the Street heard the syndicate was long. Institutional accounts often hammer the issuer’s stock once they hear the dealers are long (forcing the lead underwriter to support the share price), so that they can get a sweeter clean-up deal.
