Dismantling a Rights Offer

What is the purpose of a rights offer?

A way for the issuing company to raise cash by offering shareholders the opportunity to buy new shares at a discounted rate.

A way for companies to ensure its shareholders are properly rewarded every so often by allowing holders to buy shares at a discounted rate.

Companies are required by law to offer shareholders new shares at a discounted rate every year n order to meet standard SEC regulations.

Essentially an optional dividend where holders may choose to participate or not.

Why is a rights offer different from a normal optional dividend offer even though both require us to elect?

What is the first question that you should be able to answer right off the bat when you first receive a notification of a rights offer?

Is Qualified Institutional Buyer (QIB) paperwork required?

Does this offer require a research request?

Who are the holders of this security?

What are the restrictions placed on this security?

If a security is held in a bunch of PCG model accounts but are not restricted, who makes the decision of what to elect for this offer?

The clients

The IPC

If stocked in recently, Implementation will likely sell the security

What must be done before applying a fair value price to the rights?

What is the purpose of fair valuing a rights and must we fair value a rights everytime? Provide rationale.

Let's say you own 1,000 shares in Apple, each of which is worth $5.50. The company is in a bit of financial trouble and needs to raise cash to cover its debt. Apple therefore announces a rights offering, in which it plans to raise $30 million by issuing 10 million shares to investors at a price of $3 each. But this issue is a three-for-10 rights issue. List out the options you have as an investor.

True of False: Rights offer keeps Greg/Chad up at night.

True

False

Neither. But it is an area with the highest risk for monetary loss on the team and is highly scrutinized if an error occur.

Dismantling a Rights Offer

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