Capital One Secondary Offering, a Model of Success (COF)

How many companies can issue press release showing that a secondary offering, with not a single penny ending up in the company’s coffers, will increase the free float by about 10% on an implied basis and see its shares hardly tick down? That is the case today for Capital One Financial Corp. (NYSE: COF).

When we saw the trading reaction last night it looked impressive enough that shares were not even down 1%. ING Groep N.V. (NYSE: ING) is selling its entire stake in Capital One for somewhere around $3 billion, versus a market capitalization of $32 billion for Capital One. Technically this is not dilution because it is a share sale by an existing holder. The flip-side is that this does increase the free float for the common shares. This whopping 54 million share sale is of shares that ING received as part of a cash and stock deal in 2011 when Capital One took over ING’s online banking assets for U.S. accounts.

ING has been raising capital and it seems only logical that it would be trying to lock in the profit on those gains as well. Capital One shares are down only 0.7% at $56.09, and its 52-week trading range is $36.33 to $58.69. Capital One shares trade at 9.1-times expected 2012 earnings and they trade at 8.1-times expected 2013 earnings based upon the Thomson Reuters consensus estimates.

JON C. OGG