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Recently a Canadian bank (BMO) has participated in a "bought deal" with Canopy (WEED) for 5 million shares valuing 175 million dollars. The share price went down.

Did the share price go down because the 5 million shares were purchased under market value?

Or are new shares issued in a "bought deal" and thus contribute to dilution?

From what i read about a "Bought Deal" its usually performed before the "preliminary prospectus is filed". So not sure how it pertains to a company that is already trading?

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Did the share price go down because the 5 million shares were purchased under market value?
Or are new shares issued in a "bought deal" and thus contribute to dilution?

Hard to tell. If you look at 1 week history of prices, it has moved between 42 high and 32 low ... and there is price movement of 2-3 percentage everyday. So this could be normal volatility for the stock and the announcement may not have had only a nominal impact on price.

From what i read about a "Bought Deal" its usually performed before the "preliminary prospectus is filed". So not sure how it pertains to a company that is already trading?

There is IPO when the company goes public. A company that is already public can raise more funds by FPO [Follow on public Offer]. Generally these are offered at a slight discount to the market price to encourage more buyers. Depending on the confidence in the said company, the actual price may slightly move down towards the FPO price. However this can't be predicted and depends on what markets believe will happen and can be different for different stocks.

Generally in IPO or FPO, there is a leading institution that does the job of underwriting. A fee is charged for such function. So the institution would negotiate with the company and get appointed as underwriter. They would line up potential buyers [Mutual Funds/Large private Equity firms/other institutional investors] of [IPO/FPO] and then sign the underwriting deal with the company. This ensure that there are buyers for the IPO/FPO and in few cases the leading institution may have to actually buy shares.

In bought deal, the leading institution will first buy shares from company at discount or at agreed rate [of-course may leading institutions will bid and highest bidder will win]. Once they have purchased the shares, they will then look for buyers. If they don't get buyers, they are stuck with shares and the price moves down, they will not find buyers and may have to sell at loss.

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  • 1
    sorry and to clarify those are NEW shares issued correct ?
    – arrydavid
    Jan 19 '18 at 14:25
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    @arrydavid Generally new shares. There is not much dilution in value due to this.
    – Dheer
    Jan 19 '18 at 14:50
  • To clarify the question about dilution as per my understanding, there is no dilution as "fresh" capital enters the company.
    – Marchev
    Jan 24 '18 at 16:15

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