By Dhirendra Tripathi
Investing.com – McAfee stock (NASDAQ:MCFE) traded 2.4% lower in Wednesday’s premarket on news that some of the existing investors will sell 20 million shares of the company in a block trade.
The maker of antivirus software is not selling any shares of its own nor will it receive any proceeds from the transaction. It did not name the sellers.
The sale comprises almost 12% of the company’s outstanding equity. At Tuesday’s closing price of $27.09, the transaction amounts to $542 million.
The deal size may rise by another $81.3 million if underwriters exercise an over-allotment option to buy 3 million shares from the sellers.
A sale of by shares by existing investors can depress the stock price on two counts in the short-term. One, institutional investors don’t regularly buy and sell shares and a sale by them may indicate lack of confidence in the company under the current scenario though that’s not always the case.
Sales of shares can also happen as existing investors might have generated their desired returns and may need to return the money to their own investors.
Secondly, a large sale typically requires the shares to be sold at a discount to market in order to rebalance supply and demand for the stock.
Tuesday, UBS (NYSE:UBS) downgraded McAfee to ‘neutral’ with a target of $29, a price 7% higher than the last close. The brokerage said it likes the company's growth prospects but is wary of its ability to show strong renewal rates as PC shipments inevitably slow. The stock's valuation is also a key debate, it said.