rights offering
Noun: A rights offering is a method by which a company raises additional capital by offering new shares of its common stock to its existing shareholders. This offering is made on a pro-rata basis, meaning shareholders receive the right to purchase a number of new shares proportional to their current ownership. These rights, often called subscription rights or pre-emptive rights, typically allow shareholders to buy the new shares at a discount to the anticipated future public offering price and for a limited time.
A rights offering is a corporate action used to give current shareholders the first opportunity to maintain their proportional ownership stake (and avoid dilution) when the company issues new equity. It is a formal, structured process.
- The board approved a rights offering to fund the new acquisition without taking on excessive debt.
- Shareholders received documentation detailing the terms of the rights offering, including the subscription price and the deadline to exercise their rights.
- During the rights offering, existing investors can purchase additional shares before they are offered to the general public.
- Underwritten vs. Uninsured: A rights offering is often underwritten. This means an investment bank (the underwriter) guarantees to purchase any shares not subscribed for by existing shareholders, ensuring the company raises the intended capital.
- Transferable Rights: In some offerings, the subscription rights are transferable. Shareholders who do not wish to purchase more shares can sell their rights to other investors on the open market.
- Rights Issue: This is a synonym, more commonly used in British English.
- Subscription Right: The individual entitlement granted to a shareholder to purchase a specific number of new shares.
- Pre-emptive Right: The general legal right of existing shareholders to maintain their proportional ownership by purchasing new shares before the public.
- Rights issue
- Privileged subscription
- Dilution: A reduction in ownership percentage that a rights offering helps prevent.
- Ex-rights Date: The date on which a share trades without the attached subscription right.
- Subscription Price: The discounted price at which rights holders can purchase the new shares.
- an offering of common stock to existing shareholders who hold subscription rights or pre-emptive rights that entitle them to buy newly issued shares at a discount from the price at which they will be offered to the public later
- the investment banker who handles a rights offering usually agrees to buy any shares not bought by shareholders