SEO_rights

SEO_rights - SEO: The mechanics of "Rights" A...

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SEO: The mechanics of “Rights” A look at the mechanics of Sesoned Equity Offerings (SEO) When new/more shares are issued, the share of firm owned by existing shareholers fall Shareholders anticipate this So to make the shares initially attractive, it contains clauses for “rights offering” Existing shareholders have first right to buy new shares at some price, within a period
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Mechanics of rights Rights offering: example of mechanics Current price of share is $30 Firm may let shareholders buy a fixed number of shares at $10 within 2 months After 2 months, such rights expire Rights can be traded on exchanges and over-the-counter (OTC)
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Rights: another example Suppose ABC co. has 1 million shares outstanding Has earnings of $2 million; so EPS=$2 Current price = $20 PLAN Wish to raise $5million of new equity If pre-emptive rights contained in firm’s articles of incorporation, the shareholders get right to buy new shares
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This note was uploaded on 03/26/2008 for the course EC 150 taught by Professor Kutsoati during the Spring '08 term at Tufts.

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SEO_rights - SEO: The mechanics of "Rights" A...

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