Movie Gallery
(NDAQ:MOVI) shares moved up $0.33, or 9.82%, to $3.69 today after
Schultze Asset Management disclosed a 14.4% stake in the company and
requested a meeting with the board to propose a number of possible
shareholder value-enhancing steps.
The hedge fund suggested that
the steps could include a shareholder rights offering to raise funds
from existing shareholders in an effort to reduce bank and/or bond debt
so that future interest expense may be lowered and/or to raise cash for
generate corporate purposes.
Rights offerings are somewhat
uncommon type of securities offering. They entail the company offering
shareholders the right but not obligation to buy newly issued shares in
the firm. Sometimes a company's management or shareholders will try to
institute a rights offering in order to limit the public knowledge of
buying or limit the opportunities for outsiders to enter. Depending on
the terms of the offerings, they can be a great opportunity to acquire
rights to purchase stock on extremely reasonable terms.
Movie
Gallery was facing some trouble last year and is still burdened with
substantial debt from its acquisition of Hollywood Video. The stock is
up marginally, however, from its 52-week low despite having dropped
shoftly after the launch of its new online rental service. The rights
offering as well as the potential for more shareholder activism make
MOVI a stock
worth watching!
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