Less than four months after Aritzia Inc. raised $460 million in its initial public offering and a mere two weeks after it closed a $382 million secondary offering, the second week of February will be remembered for a more dubious achievement.

In that week, the share price of the company that describes itself as “an innovative design house and fashion retailer of exclusive brands” traded below $16 for the first time. In Aritzia’s time as a public company, $16 has some significance.

It was the price at which company sold subordinate voting shares in its IPO, the proceeds of which flowed to the selling shareholders. In other words, the company got none of the proceeds.

The $16 per share price was decided upon after the road show, because there was great interest from investors in owning a piece of a Canadian company that was formed in the mid-1980s and now has about 75 retail outlets both here and in the United States.

Initially the plan was to sell 20 million shares with each share priced in the $14-$16 a share range. Later the offer was upped to 25 million shares priced at $16, the top end of the range. One of those buyers, according to a filing, was Boston-based Fidelity which acquired almost 4.2 million shares – enough for a 13.21 per cent stake.

Toss in the 15 per cent over-allotment option – which was exercised – and the selling shareholders pocketed $460 million in gross proceeds. For the following three weeks, the shares traded above $18 – though volume, apart from the first day of trading when 1.5 million shares changed hands, was not that excessive. At year-end, the shares closed at $17.50 – meaning those who bought in the IPO were ahead while those who bought in the secondary market were probably under water.

Things remained normal until Jan. 9 when Aritzia reported its “strong” third quarter financials. Two days later, or about three months after its IPO closed, the company announced a $382 million secondary offering to be done via a bought deal. In that issue, the selling shareholders would pocket $350.7 million and the employees the rest.

It’s not the norm for a company to issue new stock so soon after completing either an IPO or a normal equity offering. Indeed in the final prospectus for its IPO under the section “Lock-Up Arrangements,” Aritzia’s directors and executive officers, and the selling shareholders agreed they would not sell any additional shares for 180 days – “without the prior written consent of the joint book-runners.”

So with permission granted, CIBC Capital Markets, Bank of America Merrill Lynch and TD Securities lobbed in a bought deal offer, which was accepted. The shares would resold at $17.45. At the time the shares were trading at $17.995.

For whatever reason – the large size, the relatively high price, the lack of a sufficient discount or the lack of time after the previous issue – the market didn’t like the deal and the shares embarked on a steady price decline. On Tuesday they closed below $16.

That decline has continued after the syndicate was forced to reprice the latest offering. A few days after the offering closed, the unsold stock was re-priced and found a home.

So what’s next? If the eight analysts who follow Aritzia are correct, the situation is a buying opportunity. All eight rate the company a buy and have posted one-year targets in the $22 – $26 a share range.

Financial Post

bcritchley@nationalpost.com