Credit & Capital

United Confronts Corona With $1B Stock Sale

The secondary offering “is a highly unusual move for an established company that is losing buckets of money and reporting steep declines in its rev...
Matthew HellerApril 23, 2020
United Confronts Corona With $1B Stock Sale

United Airlines is selling 39 million of its shares in an unusual move to weather the financial storms of the coronavirus pandemic.

The secondary offering, which is priced at $26.50 a share and is set to close on Friday, could raise $1 billion for United, which reported earlier this week that it lost $2.1 billion in the first quarter and is bracing for even worse numbers to come due to the coronavirus-fueled collapse in travel demand.

The stock continued to fall on Wednesday, closing at $25.88, or 2.4% below the offering price. Over the past three months, the shares have plunged by about two-thirds.

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As CNN reports, the offering “is a highly unusual move for an established company that is losing buckets of money and reporting steep declines in its revenue.”

“In a normal time, issuing additional shares is not something a company in United’s position would consider doing. But these are anything but normal times,” said David Becher, professor of finance at Drexel University.

United has secured $5 billion from the U.S. Treasury to cover payroll through Sept. 30 and has said it expects to borrow up to about $4.5 billion from a separate government program for airlines.

“The COVID-19 pandemic has had a material impact on the company, and the continuation of reduced demand could have a material adverse effect on the company’s business, operating results, financial condition and liquidity,” United said in the offering prospectus.

United could be signaling to the market that executives there believe the worst is over, according to Jonathan Macey, professor of corporate law and corporate finance at Yale University.

“If the market perceives the company to be struggling, a secondary offering isn’t going to work,” he told CNN. “To the extent it’s successful, it shows there is confidence that this is the bottom.”

Whether other airlines will follow suit is unclear.

“We’ve got a pretty good list of opportunities to raise liquidity from before executing that option,” said Delta Air Lines CEO Ed Bastian. “But we’re not going to exclude any option going forward until we have a better view when the recovery is going to come.”

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