Key points:
- DMGT shareholders finally gain access to their Cazoo stock this week
- That's 84 million shares, or 11% of the equity
- How much is going to get dumped for cash?
There's an overhang of 84 million, or 11% of the equity, of Cazoo (NYSE: CZOO) stock potentially about to hit the market. This is because the DMGT shareholders finally are about to gain their spin out of the Cazoo holding. Given the stock price since the DMGT takeover – and, possibly, the prospects for tech companies these days – it's possible that a lot of that Cazoo stock is going to get dumped for whatever price can be got.
Whether it will actually work out that way is something we'll find out but it is the thing to look out for.
As background, when Daily Mail and General Trust was taken private back in February, that headline takeout price was £12.63 per share (along with the transformation of A into B shares and so on). But only £8.55 pf that was in cash and cash dividends. The DMGT‘s holding in Cazoo was worth, at that time, about one third of the whole. The arrangement was that the Cazoo shares would be passed through to DMGT shareholders in good time. That good time has now arrived and those who used to hold DMGT should have their Cazoo holding on 23 June, or Thursday. As opposed to the original due date of 27 February.
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The problem with all of that being that Cazoo has lost a good 75% of its value since then, from $4.24 to around 90 cents this morning. This doesn't please DMGT holders of course, who were not able to sell out of their Cazoo holding at that higher price.
But what matters now is, well, what will they do? For this is a large chunk of stock that potentially becomes available here. 84 million shares perhaps, some 11% of the company. This has been locked away as people just haven't had the stock certificates (yes, we know, no one has those any more, haven't had the database entry) to be able to sell them. That 75% decline in price since they might have wanted to won't have pleased all that many. But what matters is what do they do now?
Don't forget near all of these stockholders will be UK based and so not really with quite the same risk appetite as Americans for high tech adventures. They were also, by definition, DMGT holders which wasn't a hot stock by any means, it was rather staid in fact. Finally, being near all UK based they're going to be influenced by the UK news cycle which has just been full of the news that Cazam, that Cazoo rival, has just gone bust. And blaming Cazoo while it did so too, at least one claim being that Cazoo's performance made raising more capital too difficult for Cazam.
It's entirely possible to expect a flood of selling as the ability to sell arrives along with the Cazoo stock. That would make the current price look at little too strong – recall, it's fully 11% that is arriving, entirely unencumbered by any selling restrictions. At the very least any bull position in Cazoo is worth holding off on until we see how much selling there is going to be.