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LO3
Seasoned Offering: Sale of securities by a firm
that is already publicly traded
Rights Issues: Issue of securities offered only to
current shareholders
Standby Underwriting Agreement: The
underwriter stands ready to purchase any
unsold shares
Oversubscription Privilege: Given to
shareholders in a rights issue enabling them to
purchase any unsold shares at the subscription
price
© 2012 McGraw-Hill Ryerson Limited
Chapter 15 -1
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LO3
Shelf Registration: A procedure that allows
firms to file one registration statement for
several issues of the same security
Private Placement: Sale of securities to a
limited number of investors without a public
offering
General Cash Offer: Sale of securities open to
all investors by an already public company
© 2012 McGraw-Hill Ryerson Limited
Chapter 15 -2
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General Cash Offers
◦ Public companies can issue securities by making a
general cash offer to investors at large or by
making a rights issue
◦ A rights issue is an issue of securities which is
offered only to existing shareholders
◦ Prompt offering prospectus (POP) system: allows
qualified firms quick access to capital by using a
short form filing process rather than a full
prospectus
◦ Self registration: procedure followed in the US that
allows firms to file one registrations statement for
several issue of the same security
LO3
© 2012 McGraw-Hill Ryerson Limited
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LO3
In a rights issue, the company offers its shareholders the
right to buy additional shares at a subscription price, which is
significantly below the market value of the shares
Example
◦ ABC Corp currently has 9 million shares outstanding. The
market price is $15 per share. ABC decides to raise
additional funds via a 1 for 3 rights offer at $12 per share.
If we assume 100% subscription, what is the value of each
right?
Current Market Value = 9 mil  $15 = $135 mil
Total Shares = 9 mil + 3 mil = 12 mil
Amount of new funds = 3 mil  $12 = $36 mil
New Share Price = (136 + 36) / 12 = $14.25 per share
Value of a Right = Rights-on price – Ex-rights price
= 15 - 14.25 = $0.75
© 2012 McGraw-Hill Ryerson Limited
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LO3
Costs of the general cash offer
 Substantial admin costs
 Compensation to underwriters
 Economies of scale
Market reaction to stock issues
© 2012 McGraw-Hill Ryerson Limited
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A private placement is the sale of securities to a limited
number of investors without a public offering
Private placements avoid many of the costs associated
with a public offering and are less expensive to arrange
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Advantages
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Disadvantage
◦ The issue can be custom tailored
◦ It is much easier to change the terms of the contract when
only a few investors are involved
◦ Investors cannot easily resell the security
LO3
© 2012 McGraw-Hill Ryerson Limited
Chapter 15 -6