Today Chesapeake Energy Corporation (CHK) closed at $32.08, down 4.52%.  This was because of its public offering of 30 million shares.  Underwriter Deutsche Bank agreed to buy the stock at a purchase price of $31.85 per share and sell it at a public offering price of $32.15.  Chesapeake will raise about $1 billion from this offering and use the money to pay down debt.  The additional 30 million shares will dilute the existing shares by 6%.

The stock fell because of the dilution and because Deutsche Bank's offering price of $32.15 was well below yesterday's closing price of $33.60.  My opinion: Great!  I hope the stock falls further so I can buy more.  Over the past year CHK, on occasion, has fallen down to $27 or $29 and each time I kicked myself for not buying because it always goes back up above $30.

Trading tactics aside, I do think this is good news.  Usually when a company issues stock to pay down debt, I get squirmy.  But not in Chesapeake's case.  Chesapeake is a highly leveraged company - and always has been leveraged - with $5 billion in debt.  Over the years the company has made a fortune by borrowing to finance acquisitions of natural gas assets.  Judging by the massive growth of their sales, earnings, and reserves, the company is extremely good at what they do.  With this $1 billion cash infusion, the company will be well positioned to increase production and acquire more assets in the coming years.

And don't forget about the insiders.  Like I wrote in a previous article titled "Insider Pump and Dump", CEO Aubrey McClendon has the most to lose - and gain - from this transaction.  He owns around $900 million worth of shares.  So if you don't like the fact that CHK diluted your shares, think about the dilution Mr. McClendon is taking.  But obviously he is fine with it.  I'm assuming he sees major growth ahead.  One step back, two steps forward…