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Unformatted text preview: seasoned offerings. | v v 126 | e-Text Main Menu | Textbook Table of Contents | Study Guide Table of Contents Th e Costs of Go in g Pub lic : Th e Case of M ulticom (p. 465) This section describes a real IPO and the attendant
costs. The impo rtant conclusion is that, while$7.15 million was raised by selling shares, the issuing firm received
only $6.6 million. Additionally, the firm had to pay $145,00 0 to the underwriters to defray expenses incurred.
VIII. RIG HTS (p. 466)
A firm's articles of incorporation may contain a pree mptive right, which specifies that any new issue of com mon
stock mu st be first offered to existing stockholders, and gives shareholders the opportunity to maintain their
percentage own ersh ip of the firm when new securities are sold. As noted above, a stock issue offered to existing
shareholders is a rights offering or a privileged subsc ription. A shareholder receives one right for each share
own ed. A specified num ber of rights gives the shareholder the option to buy a new share at a fixed price, called the
subsc ription price, during a specified time period, after which the rights expire. Shareholders can exercise their
rights by purchasing the stock, or sell the rights.
Th e M echanics of a Righ ts Offerin g (p. 466) The man ager determines each of the following for a rights
offering: (1) subscription price; (2) num ber of shares to be sold; (3) num ber of rights required to purchase a new
share; and, (4) impact of the rights offering on the value of the existing com mon stock.
Nu mber of Righ ts Nee ded to Pur chase a Sha re (p. 467) The subscription price mu st be set below the market
price in order for the rights offering to succeed. The num ber of new shares to be issued equals
Funds to be raised/Subscription price.
The num ber of rights needed to buy one new share is equal to
Num ber of old shares/Num ber of new shares.
Th e Valu e of a Righ t (p. 468) The rights holder has the right to purchase new shares at the subscription price,
which is below the current market price, so the value of a right equals the value of a share prior to the offering less
the value of a share subsequent to the offering.
Ex Righ ts (p. 470) The firm establishes a holde r-of-r ecord date; one who is a 'holder-of-record' on that date
receives one right for each share own ed. The ex-rights date is two business days prior to the holder-of-record date.
Th e Un derwriting Arr angem ents (p. 471) A rights offering often involves standb y und erwriting - the
underwriter is paid a standb y fee and agrees to purchase any unsubscribed shares. Shareholders are usually given an
oversu bscription privilege, i.e., an option to buy additional shares at the subscription price, if available.
Righ ts Offers: Th e Case of Tim e-War ner (p. 471) This section describes several recent rights offerings in the
United States and abroad.
Effects on Sha reholders (p. 471) As long as shareholders either exercise or sell their rights, they are not harmed
by the rights offering and the subsequent decline in sto...
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