Plug Power Holders Win, and Lose, from Capital Raise

Plug Power Inc. (NASDAQ: PLUG) is doing something that is good for the company, but at the expense of existing shareholders. The controversial alternative energy company filed to raise an undisclosed amount of capital via the sale of common stock, preferred stock, warrants, units and/or debt securities. A subsequent SEC filing shows that the capital raise will come via the sale of 15 million shares of common stock.

At the price listed as of Tuesday’s close, this would have been closer to $105 million in proceeds. Plug Power’s market cap was close to $950 million at the time. So, why is this good for the company but bad for shareholders?

Plug Power ended 2013 with only about $5 million in cash. A recent short seller attack from Citron Research only highlights how Plug Power needs to bolster its balance sheet. To prove a point: the capital raise filings with the SEC showed that actual product sales of $18.44 million in 2013 were lower than the $20.79 million in 2012 and lower than the $19.59 million in 2011.

Service revenues nearly doubled in 2013, but the company simply has to get more and more product sales before anyone can get excited about service revenues.

Another bit of good news is that the proceeds are going to the company and will be for the company’s use. Plug Power said, “We intend to use the net proceeds from this offering for working capital and other general corporate purposes, including capital expenditures and potential acquisitions.”

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The bad news is that this capital raise comes on the heels of a major run, and it dilutes existing shareholders. After the offering there will be some 121,190,652 shares outstanding, or 123,440,652 shares if the underwriters exercise their option to purchase additional shares in full. There were 106,190,652 shares of common stock outstanding as of December 31, 2013. What investors need to understand here is that the dilution seems small on the surface, and it is almost a certainty that investors will not be fighting over a dividend payment here for quite a long time (if ever!).

Be advised that the total number of shares outstanding excludes almost 7 million shares from various options, as well as 10.9 million shares from a series C preferred stock and another 24.1 million shares issuable from the exercise of warrants. Plug power’s filing further updated its shares outstanding by saying:

The number of shares of our common stock outstanding as of March 31, 2014, was 143,958,761, which excludes 4,785,485 shares of common stock issuable upon the exercise of stock options outstanding as of March 31, 2014, at a weighted average exercise price of $3.19 per share; 971,775 shares of our common stock reserved for future issuance under our equity incentive plans as of March 31, 2014; 165,906 shares of common stock held in treasury; 650,002 shares of common stock issuable upon the vesting of restricted stock units; 11,065,880 shares of common stock issuable upon conversion of our Series C Redeemable Convertible Preferred Stock at an exercise price of 0.234520 per share; and 4,250,490 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 2014, at a weighted average exercise price of $3.82 per share.

One thing that Plug Power did not say is that it effectively will be buying Wall Street research coverage as a side benefit in this offering, and from reputable firms. Morgan Stanley and Barclays are listed as the book-runners, and co-managers are listed as Cowen and FBR. These underwriters also will be granted an overallotment option to purchase up to 2,250,000 additional shares of common stock at the same offering terms.

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Plug Power shares were down 7.6% at $6.18 in the late-morning session on Wednesday, and its 52-week trading range is $0.15 to $11.72.