Why is the Carsales share price crashing 15% lower today?

Carsales shares are sinking on Wednesday. Here’s why…

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Key points

  • Carsales shares have returned from a trading halt and sunk deep into the red
  • The auto listings company's shares are falling after it raised $842 million via a capital raising
  • The proceeds will be used to support the acquisition of the remaining 51% of Trader Interactive

The Carsales.Com Ltd (ASX: CAR) share price has returned from its trading halt and dropped deep into the red.

In morning trade, the auto listings company’s shares are down by a sizeable 15% to $17.70.

This leaves its shares trading within touching distance of its 52-week low of $17.45.

Why is the Carsales share price sinking?

The Carsales share price is sinking today after the company announced the successful completion of the institutional component of its fully underwritten pro-rata accelerated non-renounceable entitlement offer.

According to the release, the company has raised approximately $842 million at a 14.5% discount of $17.75 per new share. The release notes that the offer was well supported with a take-up of 90% by eligible institutional shareholders.

Carsales will now push ahead with the retail component of the entitlement offer, which is expected to raise approximately $365 million. This will bring the total raised from the offer to approximately $1,207 million.

Why is Carsales raising funds?

The proceeds from the capital raising will be used to acquire the remaining 51% interest in Trader Interactive for US$809 million, or approximately A$1,172 million.

This acquisition price values Trader Interactive on a 100% enterprise value basis at US$1.9 billion or A$2.75 billion.

Management expects the deal to generate highly attractive financial returns for shareholders, with low double-digit earnings per share accretion expected in the first full year of ownership and further upside expected thereafter.

Carsales’ CEO, Cameron McIntyre, was pleased with the success of the offer. He commented:

We are very pleased by the support demonstrated by institutional shareholders for the entitlement offer and their endorsement of the acquisition. We look forward to working with the Trader Interactive team to capture growth potential and realise value for our shareholders.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended carsales.com Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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