Why Magellan shares are rising again after its $20 million raise was swamped

Magellan Financial Group Ltd (ASX: MFG) shares are pushing higher on Tuesday.

In afternoon trade, the Magellan share price is up 2.57% to $9.795, adding to the gains the stock has made since announcing its Barrenjoey deal earlier this month.

The buying follows a new ASX update from the fund manager, with the market reacting positively to another sign that shareholders are getting behind management’s plans.

It also suggests investors remain comfortable with how the business is positioning itself ahead of the proposed merger.

Retail investors heavily back the capital raising

The detail behind today’s move is Magellan’s share purchase plan, which drew far more demand than the company was looking for.

According to the release, the fund manager received $129.4 million in valid applications from 5,195 eligible shareholders, equal to a 17% participation rate.

That was well above the $20 million target, which meant larger applications had to be scaled back under the terms of the offer.

Applications up to $997.10, or 118 shares, were not scaled back, while larger bids were reduced on a pro-rata basis.

In total, Magellan will issue roughly 2.37 million new shares at $8.45 each, the same price used in the institutional placement completed earlier this month.

Management said the result showed strong support from retail investors, with the new capital to be used in line with the strategy previously outlined to shareholders.

The new shares are due to be issued on 1 April, start trading on the ASX on 2 April, and will rank equally with existing shares.

Why investors are paying attention

The capital raising is part of the funding package linked to Magellan’s proposed merger with Barrenjoey.

The deal would bring together Magellan’s established funds management business with Barrenjoey’s growing investment banking and institutional operations.

Management has said the combination is aimed at building a broader financial services group with more earnings sources, stronger client relationships, and balance sheet flexibility.

Today’s strong response to the share purchase plan suggests existing investors are willing to support that direction.

The pricing also helps explain the demand. With the new shares issued at $8.45, successful applicants are getting stock at a sizeable discount to the current $9.795 share price.

What to watch next

The next key step is the shareholder vote on the proposed Barrenjoey transaction at Magellan’s scheduled April meeting.

Investors are also likely to focus on how the company puts the newly raised funds to work alongside the $130 million institutional placement.

The shareholder vote should determine whether the company can move ahead with the next stage of its merger plans.

The post Why Magellan shares are rising again after its $20 million raise was swamped appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.