Why LegalZoom Stock Dove by Nearly 11% This Week

What happened

The market delivered an unfavorable verdict on LegalZoom‘s (LZ 1.66%) stock this week, with investors bidding its share price down by almost 11%, according to data compiled by S&P Global Market Intelligence. News that a major shareholder selling its stake was the main catalyst of the sell-off.

So what

LegalZoom, which provides online legal services, said Wednesday that the stakeholder is selling 13 million common shares in an underwritten public offering. The underwriters have been granted a 30-day option to purchase an additional 1.95 million shares. 

The offering has been priced at $10 per share — noticeably below the $11.29 per share price where the stock closed last Friday.

The seller is an entity called LucasZoom, which currently holds slightly more than 38 million common shares of LegalZoom — nearly 20% of the company.

LegalZoom took pains to emphasize that it will receive no proceeds from the sale, as it is not the selling party.

Now what

LegalZoom added that it has entered into an agreement with LucasZoom under which it will repurchase over 4.7 million shares of its common stock. This will occur in a private, non-underwritten arrangement between the two entities. The total price will be roughly $45.1 million, which equates to $9.55 per share. 

Following these transactions, LucasZoom’s stake will be reduced to as little as 10.1%, depending on whether (and to what degree) the underwriters exercise their option.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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