Shares of TeraWulf Inc. (WULF), a Bitcoin mining company, experienced a substantial decline of over 7%, dropping to $5.84. This follows the recent announcement of a $425 million issuance of 2.75% convertible senior notes due in 2030.
Market Reactions and Performance Analysis
Matthew Sigel, the head of digital assets research at VanEck, noted that TeraWulf was the poorest-performing stock in the VanEck Digital Transformation ETF (DAPP) as of October 24.
“Instead of announcing a new AI/HPC customer, which stakeholders were eagerly anticipating, the focus was on a dilutive convertible offering.”
It’s important to note that TeraWulf’s share price had seen a dramatic rise of 71% between October 9 and October 22 before this current decline, indicating a natural market correction.
Resistance Levels Indicated
According to Daniel Marques from Ernst & Young, the price point around $6 is acting as “heavy resistance”, indicating potential challenges for shares to break through this level in the near term. He forecasted:
“I anticipate a 20-30% pullback before aiming for the $7-9 range. This is all part of a long-term strategy.”
Utilization of Funds from Convertible Notes Offering
TeraWulf plans to strategically use the capital gained from the note offering. The funds will be allocated as follows:
- $115 million for repurchasing common stock.
- $51 million allocated to financed capped call transactions, aimed at minimizing potential dilution from convertible notes conversions.
- The remainder will support general corporate purposes, which could involve working capital, strategic acquisitions, and expanding data center infrastructure to bolster high-performance computing (HPC) operations.
The convertible notes will allow for conversion into cash, shares, or a combination thereof, pegged at a rate of 117.9245 shares per $1,000 principal amount, corresponding to an initial conversion price of approximately $8.48 per share—indicating a 32.5% premium over TeraWulf’s share price from October 23.
Capped Call Transactions Explained
In addition to the offering, TeraWulf has initiated capped call transactions with a ceiling of $12.80 per share, which is double the closing price noted on October 23. Capped calls serve to minimize potential losses for entities selling options to companies issuing convertible debt.
Share Repurchase Program and Its Impact
Alongside the offering, TeraWulf has kicked off a share repurchase initiative, buying around 17.97 million shares for $115 million, taking into account the October 23 closing price of $6.40 per share. This repurchase is anticipated to enhance shareholder value by reducing the available shares in circulation.
