In need of cash, Fairmount Santrol Holdings Inc (NYSE:FMSA) is raising additional capital by diluting its stock. Though offering new shares is a low-cost way for a company to raise funds, it destroys value for existing shareholders. Perhaps that could explain why Fairmount stock plunged when the company announced its equity fundraiser plans.

$285.9 million sought

Fairmount is offering close to 30.3 million shares of its common stock. But it could boost the offering by more than 4.5 million shares if demand for the stock proves to be strong. Without the additional shares, Fairmount expects the equity fundraiser to generate $285.9 million in gross proceeds.

No hint on net proceeds

Fairmount has not said how much it expects after deducting commissions and costs related to the offering. However, the net proceeds will be less than $285.9 million. The company has also not revealed what it intends to use the funds for.

But given that Fairmount is in restructuring mode, the funds could help it meet expenses related to the restructuring work. As part of the restructuring, the company has laid off staff and made other adjustments to its business to reduce operating costs.

Fairmount is looking to save at $15 million through the restructuring.

Offering underwriter

Morgan Stanley (NYSE:MS) is helping FMSA with the equity fundraiser as the underwriter.

3Q16 results reporting

Fairmount is scheduled to release its 3Q16 results on November 10. However, the company recently released preliminary results showing that EPS loss for the quarter will be in the range of $0.11 to $0.13. Revenue is expected in the band of $133 to $135 million.

The preliminary results compare with Wall Street estimates calling for EPS loss of $0.12 on revenue of $128.1 million.

Despite the recent dip in Fairmount stock following the announcement of the equity offering, shares of Fairmount have nearly tripled this year.