Bitcoin (BTC) mining company TerraWolf's WULF shares fell more than 7% to $5.84 after the company announced a $425 million offering of 2.75% convertible notes due in 2030. .
Matthew Sigel, head of digital asset research at VanEck, highlighted on October 24 that WULF was the worst performing stock in the VanEck Digital Transformation ETF (DAPP).
Siegel says:
“Instead of announcing the AI/HPC customers that investors have been waiting for, they announced convertibles that are expected to be dilutive.”
The current decline in Terrawolf's stock price is also a healthy retracement following a blistering 71% rally this month from October 9th to October 22nd.
Ernst & Young manager Daniel Marquez wrote in X that the price range around $6 is acting as a “strong resistance level” and that it will be difficult for strength indicators to overcome this area in the short term. He said it shows. He added:
“We expect a 20-30% cooling before the next rally to $7-$9. It's all part of the long-term game.”
Business expansion and buyback program
TeraWulf plans to allocate the proceeds from this offering to several key areas, with $115 million allocated to common stock repurchases and an additional $51 million allocated to potential dilution from the conversion of convertible notes. allocated to the financing of capped call transactions designed to reduce the
Remaining funds will support general corporate purposes, including working capital, strategic acquisitions and data center infrastructure expansion to further develop our high performance computing (HPC) activities.
The notes are exchangeable for cash, common stock, or a combination of both, at the Company's discretion, based on an exchange rate of 117.9245 shares per $1,000 principal amount.
This represents an initial conversion price of approximately $8.48 per share, representing a 32.5% premium over TeraWulf stock's closing price on October 23, according to the announcement.
Additionally, the company entered into a capped call transaction with a maximum price of $12.80 per share. This is double the closing price on October 23rd. A capped call is a type of derivatives transaction that limits the potential loss of the counterparty selling the option. A company that issues convertible bonds.
This move is intended to reduce potential dilution and offset cash payments in excess of the principal amount of the notes in the event of conversion.
Specifically, TeraWulf simultaneously initiated a stock repurchase program, acquiring approximately 17.97 million common shares for $115 million at the October 23 closing price of $6.40 per share.
According to a statement from TeraWulf, the share buyback is expected to reduce the number of outstanding shares and increase value for existing shareholders.
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