Key Takeaways
- Shares of enterprise IT firm Hewlett Packard Enterprise tumbled following the announcement of a $1.5 billion convertible preferred stock offering.
- The company intends to use the proceeds of the transaction to fund its acquisition of networking equipment provider Juniper Networks.
- HPE shares fell Tuesday, dropping into negative territory for 2024.
Hewlett Packard Enterprise (HPE) shares suffered the steepest daily loss of any stock in the S&P 500 on Tuesday, plunging more than 7% after the provider of enterprise technology solutions announced a $1.5 billion convertible stock offering.
According to a filing with the Securities and Exchange Commission (SEC), HPE plans to use the proceeds from the offering — of 27 million shares of mandatory convertible preferred stock — to cover fees and expenses related to its acquisition of the networking equipment maker Juniper Networks (JNPR).
HPE in January said it would purchase Juniper in an all-cash deal worth around $14 billion, aiming to and improve its position in artificial intelligence (AI) networking markets.
Impact of Share Offering
The offering of additional shares often causes downward pressure on stock prices because it results in dilution—a reduction in the value of the shares held by existing investors as their proportional ownership in the company diminishes.
In this transaction, Hewlett Packard Enterprise is offering preferred shares, a class of stock that provides priority dividend payouts compared with common shares. Preferred shareholders also have the option to convert their holdings into common stock.
The preferred shares offered by Hewlett Packard Enterprise will automatically convert to common stock around Sept. 1, 2027 unless shareholders redeem or convert their shares prior to that date.
Earnings and Stock Performance
In its most recent earnings report, released Sept. 4, Hewlett Packard Enterprise posted better-than-expected sales. An increase in server revenue, boosted by AI demand, helped drive the performance. However, diluted earnings per share (EPS) fell shy of forecasts, and the stock has been trending downward in the week following the release.
Following Tuesday’s losses, HPE shares fell into negative territory for 2024, currently down around 4% year to date.