Shares of conservative media outlet Newsmax (NMAX 9.80%) traded nearly 8% higher today as of 12:23 p.m. ET today. This morning, the company announced a standby equity purchase agreement (SEPA) of $1.2 billion with the global investment management firm Yorkville Advisors.
Enthusiasm after the IPO
Newsmax went public in a small initial public offering of $75 million, with shares initially priced at $10. The stock immediately shot up an incredible 2,230% before losing some of that steam. Even still, shares were up nearly fivefold, as of this writing. Many believe the ascent can be attributed to the small number of shares issued and the company’s frequent support of President Donald Trump.
The SEPA gives Newsmax the option to have Yorkville purchase up to $1.2 billion of class B shares at any time over the next 24 months, subject to certain conditions. Management attributed the reasoning for the SEPA to excitement around the IPO, and said they are focused on making the terms of future funding beneficial to the company.
“While we are under no obligation to draw on the full amount, this action allows us to maintain a strong balance sheet while adding liquidity to our shares over time,” Newsmax CEO Christopher Ruddy said in a statement. “The new access to capital will also provide our team with the flexibility to respond to new opportunities and challenges efficiently as we continue to grow Newsmax as the media landscape evolves.”
Newsmax can terminate the SEPA at any time with five days’ notice, and Yorkville is not allowed to engage in any short sales of the stock. Newsmax will also not conduct any sales of stock that could lead Yorkville to acquiring 19.99% of the company’s outstanding common stock, including class A shares.
Still in meme stock territory
Newsmax blasted into orbit following its IPO, and now management is giving the company access to capital at a high potential valuation, which is when you want to raise capital. That said, Newsmax is still trading like a meme stock, has a high valuation, and is not profitable. For these reasons, I would steer clear.
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.