Citi Prices Largest Offering in U.S. History; Wrong Time & Price (C)

Citigroup Inc. (NYSE: C) was already in our “top after-hours trading movers” because of weakness in its share price on the discounted secondary offering.  That is no longer conjecture.  Citi’s secondary offering is for 5.4 billion shares of common stock and 35 million tangible equity units that will be used to repay its TARP obligations.  This is the largest public equity offering in the history of U.S. capital markets.

The common stock is at a price of $3.15 per share after a $3.45 close after a 3% drop in regular trading.  The net proceeds are about $17 billion. The tangible equity units priced at $100.00 each, generating net proceeds of about $3.5 billion with about $2.8 billion counted as equity.

The US Treasury decided not to sell any of its shares in connection with Citi’s sale of common stock and tangible equity units.The U.S. Treasury announced that it would extend its lock-up period on the sale of its 7.7 billion share common equity stake to 90 days from 45 days after the completion of this offering.

UNIT DESCRIPTION:  The tangible equity units are comprised of a prepaid stock purchase contract and a junior subordinated amortizing note. Each stock purchase contract has a settlement date of December 22, 2012 and will settle for between 889 million and 1.1 billion shares of Citi common stock, subject to adjustment as described in the final prospectus relating to the offering. The amortizing notes will pay holders equal quarterly installments of $1.875 per amortizing note, which in the aggregate will be equivalent to a 7.50% cash payment per year with respect to each $100 stated amount of tangible equity units and has a scheduled final installment payment date of December 15, 2012. Citigroup has the right to defer installment payments on the amortizing notes at any time and from time to time but not beyond December 15, 2015.

CNBC interviewed Dick Bove of Rochdale this afternoon after the close, and he called this offering “terrible” and said this might create added pressure on CEO Vikram Pandit.

Citigroup’s stock was indicated down over 6% at $3.23 in the after-hours session.  We have worried about the major dilution this would create, and the company better hope and pray that it never find itself in need of further government (or private help) ever again.  This is an example of the wrong offering, at the wrong time, and at the wrong price.

JON C. OGG