1. © 2012 McGraw-Hill Ryerson LimitedChapter 15 -1  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 LO3

2. © 2012 McGraw-Hill Ryerson LimitedChapter 15 -2  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 LO3

3. © 2012 McGraw-Hill Ryerson LimitedChapter 15 -3  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

4. © 2012 McGraw-Hill Ryerson LimitedChapter 15 -4  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 LO3

5. © 2012 McGraw-Hill Ryerson LimitedChapter 15 -5  Costs of the general cash offer  Substantial admin costs  Compensation to underwriters  Economies of scale  Market reaction to stock issues LO3

6. © 2012 McGraw-Hill Ryerson LimitedChapter 15 -6  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  Advantages ◦ The issue can be custom tailored ◦ It is much easier to change the terms of the contract when only a few investors are involved  Disadvantage ◦ Investors cannot easily resell the security LO3