Sun Savings & Loan, its stock price plummeting to an all-time low in the last six weeks, on Wednesday indefinitely postponed its planned public and private stock offering. The offering would have doubled its capital and brought its net worth up to regulatory standards.
Based on "current market conditions," the offering would not "cost-effectively generate sufficient capital to satisfy the intended objectives," according to Sun President and Chief Executive John McEwan.
Sun had planned to raise nearly $7.2 million next month by selling 1.053 million shares of authorized but unissued common stock and by accepting a $2.5-million cash investment from developer Victor Fargo. After expenses, the estimated book value of Sun stock was expected to be $5 per share. (Book value as of June 30 was $5.30.)
However, Sun's common stock has tumbled in the last six weeks, closing at 3 1/8 on Tuesday. The stock, which did not trade Wednesday, was trading for $5 a share at the end of August. It has steadily drifted down ever since.
But the Fargo investment and the public offering--which was to be underwritten by New York financier Van D. Greenfield--have not been called off.
However, Sun is "continuing to pursue" other private capital-infusion alternatives, including, McEwan said, a possible $2-million investment by Fargo.
That is being negotiated and would include the prior offering's proviso that Sun become a tenant and equity partner in Fargo's new La Jolla office building.
Canceling the public offering means that Sun is "back to ground zero" and must resubmit any new proposal to state regulators, said McEwan.
He acknowledged that it now appears unlikely that Sun will be able to boost its capital base to reach 3% of its $468 million in assets before year's end. As of June 30, Sun's net worth was $6.4 million, or 1.36% of its assets, well below the 3% regulatory minimum.
Any new deal with Fargo would prohibit him from buying more than 9.9% of Sun's stock and from becoming a Sun director or officer, the company said Wednesday.
Fargo could not be reached Wednesday for comment.
McEwan said he didn't know why the stock had dropped so dramatically. He acknowledged that the company was "pursuing alternatives" as the stock tumbled and that perhaps "some word got out that we were looking at contingency plans. Maybe . . . people came to the conclusion that we weren't going to be able to do the public offering."