Virgin Galactic Registration Rights Agreement Explained
Virgin Galactic, the space tourism company founded by British entrepreneur Sir Richard Branson, has been making headlines for quite some time now. The company, which has already sent a handful of people to space, has been making significant strides in the space tourism industry. And while most of the attention has been on the spaceflights, there`s one legal term that has recently come to light: registration rights agreement.
So, what is the Virgin Galactic registration rights agreement, and why is it important?
What is a Registration Rights Agreement?
A registration rights agreement is a contract between a company and its stockholders that outlines the right of the stockholders to request that the company register their shares with the Securities and Exchange Commission (SEC). When a company goes public, it offers shares of its stock to the public, and those shares can be bought and sold on the stock exchange. This process is called an initial public offering (IPO), and once the shares are sold to the public, they become freely tradable. However, some shareholders may still be restricted from selling their shares, usually due to agreements made before the IPO.
A registration rights agreement allows these restricted shareholders to request that the company registers their shares with the SEC, making them freely tradable.
Virgin Galactic`s Registration Rights Agreement
Virgin Galactic went public in October 2019 through a merger with Social Capital Hedosophia, a special purpose acquisition company. As part of the deal, Social Capital Hedosophia purchased 49% of Virgin Galactic`s shares for $800 million. Since then, the share price has skyrocketed, and the company`s market capitalization has been hovering around $11 billion.
However, the registration rights agreement came to light when Virgin Galactic announced in December 2020 that it would be selling up to $500 million worth of shares, with the proceeds going toward general corporate purposes. The news prompted the company`s largest shareholder, Chamath Palihapitiya, to exercise his registration rights and sell his shares. Palihapitiya, who is a former Facebook executive and founder of Social Capital, will be selling up to 6.2 million shares, worth about $213 million.
What Does This Mean for Virgin Galactic?
Palihapitiya`s decision to exercise his registration rights and sell his shares has triggered concerns among investors. If Palihapitiya sells his shares, the stock price could drop, as it would increase the number of shares available on the market.
However, some analysts believe that the move could be positive for the company in the long run. Palihapitiya`s sale would decrease his stake in the company from 15.8% to 14.3%, which could make the stock more attractive to institutional investors. Additionally, the sale could provide the company with more liquidity, which could be used to further develop its space tourism business.
The Virgin Galactic registration rights agreement may not be the sexiest topic when it comes to spaceflight, but it is an important legal agreement that affects the company`s shareholders. While Palihapitiya`s decision to sell his shares may cause short-term volatility in the stock price, it could ultimately benefit the company in the long run. As Virgin Galactic continues to push the boundaries of space tourism, it will be interesting to see how the registration rights agreement and shareholder dynamics evolve.