E-Trade shares plummeted by 14%

On Friday, E-Trade Financial Corp. stocks dropped by 14% and touched a low of $1.17, bouncing back after the company priced a public offering of 435 million common stocks that dilutes current stockholders. The price represented a 23% discount to the stock's Thursday close at $1.43. 

The company reported it priced the stock under an existing shelf registration statement at $1.10 a share, raising about $478.5 million in gross proceeds. The offering is to close on June 24, in compliance with customary closing terms. E-Trade had about 572 million stocks outstanding before the sale.

Earlier this week, the largest shareholder and bondholder Citadel investment Group agreed to purchase up to $100 million of the new common shares, and to convert another several hundred million dollars of debt into new preferred shares. Citadel is striving to salvage some of the company's previous investment in E-Trade, having bought at about $4.91 a share. 

In November 2007, Citadel infused more than $2 billion into E-Trade in a deal that let the company become the owner of 20% of the E-trade business. Thus, Citadel ended up buying 90.9 million of the new E-Trade common stocks. So, as for now, the company is to own about 17% of E-Trade's total common stocks. 

E-Trade also granted the underwriters an option to acquire up to an additional 65 million shares of common stock, subjected to the same terms and conditions if demand for the offering warrants. Offering proceeds will provide additional equity capital and secondarily, that will be used for other corporate purposes.