Shares of CPI Card Group (PMTS) experienced a significant decline of 15% by 10:50 a.m. ET on Tuesday. The drop can be attributed to the company’s largest shareholder, Parallel49 Equity, deciding to sell a substantial portion of its holdings.
According to an announcement by CPI Card Group, the private equity firm Parallel49 Equity intends to sell between 1.2 million to 1.4 million shares at $21 each, dependent on the exercise of overallotment options. The closing price of CPI stock was near $28 the previous night, leading to investor surprise and concern over the decision to sell at this lower price, which suggests potential insider knowledge not available to the public.
Data from S&P Global Market Intelligence indicates that Parallel49 Equity initially invested in CPI Card Group in June 2007. Given the time frame, the investment likely cost significantly less than the current value of the stock, making it a reasonable time for the firm to realize some profits after a long holding period.
The impact of this sale on CPI Card Group’s future is twofold. Previously, Parallel49 Equity owned 6.2 million shares, representing a 56% stake, thus maintaining control over CPI Card Group. A reduction in its holdings to below 5 million shares or a 45% stake means that Parallel49 will no longer hold a controlling interest. This shift could potentially increase the attractiveness of CPI Card Group to other investors, as control will no longer be solely in the hands of a single private equity firm.
This development is likely to benefit both outside investors and Parallel49 Equity in the long term by potentially boosting the company’s overall market value.
Rich Smith holds positions in CPI Card Group. The Motley Fool does not have any positions in the stocks mentioned and maintains a disclosure policy.
