BU393 Lecture Notes - Lecture 9: Underwriting
Document Summary
When a company offers an issue of common stock directly to existing shareholders (rather than open it to public), it is called a rights offering. If a company has pre-emptive rights in its articles of incorporation, then rights offerings must occur before a public offering. What price should the existing shareholders be allowed to pay for a share of new stock. How many rights will be required to purchase one share of stock. What effect will the rights offering have on the existing price of stock. The price that existing shareholders are allowed to pay for a share of stock. Common sense tells us that a shareholder will only subscribe to the rights offering if this subscription price is below the market price of the stock at the time of rights expiration. Number of rights needed to purchase a share + value of right. Number of new shares needed = funds to be raised / subscription price.
