Beruflich Dokumente
Kultur Dokumente
19-1
19-2
19-3
Public Issue
Privileged Subscription
Regulation of Security Offerings
Private Placement
Initial Financing
Signaling Effects
The Secondary Market
FINANCIAL BROKERS
SECONDARY MARKET
SAVINGS SECTOR
19-5
FINANCIAL
INTERMEDIARIES
INVESTMENT SECTOR
Privileged
subscription
Private
placement
Indicates the possible
presence of a
standby arrangement
Indicates the financial
intermediaries own
securities flow to the
savings sector
Public Issue
Public Issue -- Sale of bonds or stock
to the general public.
19-6
Investment Banker
Investment Banker -- A financial institution that
underwrites (purchases at a fixed price on a
fixed date) new securities for resale.
19-7
Investment Banker
19-8
Traditional Underwriting
Underwriting -- Bearing the risk of not being
able to sell a security at the established price
by virtue of purchasing the security for
resale to the public; also known as firm
commitment underwriting.
underwriting
19-9
Traditional Underwriting
Underwriting Syndicate -- A temporary
combination of investment banking firms
formed to sell a new security issue.
A. Competitive-bid
19-10
Traditional Underwriting
B. Negotiated Offering
19-11
Traditional Underwriting
Best Efforts Offering -- A security offering in which
the investment bankers agree to use only their best
efforts to sell the issuers securities. The
investment bankers do not commit to purchase any
unsold securities.
Shelf Registration -- A procedure whereby a
company is permitted to register securities it plans
to sell over the next two years; also called SEC Rule
415.
415 These securities can then be sold piecemeal
whenever the company chooses.
19-12
19-13
Privileged Subscription
Privileged Subscription -- The sale of new securities
in which existing shareholders are given a
preference in purchasing these securities up to the
proportion of common shares that they already own;
also known as a rights offering.
offering
Preemptive Right -- The privilege of shareholders to
maintain their proportional company ownership by
purchasing a proportionate share of any new issue
of common stock, or securities convertible into
common stock.
19-14
Terms of Offering
Right -- A short-term option to buy a certain
number (or fraction) of securities from the issuing
corporation; also called a subscription right.
right
Terms specify:
the
19-15
the
the
Subscription Rights
Options available to the holder of rights :
19-16
Subscription Rights
A shareholder who owns 77 shares and
just received 77 rights would like to
purchase 8 new shares. It takes 10 rights
for each new share. What action should
the shareholder take?
The shareholder can then purchase 7 shares
(use 70 rights) and still retain the 7 remaining
rights. Thus, the shareholder needs to
purchase an additional 3 rights.
19-17
Value of Rights
What gives a right its value?
A right allows you to buy new stock at a
discount that typically ranges between 10 to 20
percent from the current market price.
The market value of a right is a function of:
19-18
R0 =
P0 - S
N+1
PX = P0 - R0 = [ (R0)(N) + S ]
By substitution for R0, we can solve the
ex-rights value of one share of stock, PX.
PX =
19-20
(P0 )(N) + S
N+1
Example of the
Valuation of a Right
What is the value of a right when the stock is
selling rights-on? What is the value of one
share of stock when it goes ex-rights?
19-21
R0 =
$50 - $40
9+1
R0 = $1
19-22
Theoretical versus
Actual Value of Rights
Why might the actual value of a right
differ from its theoretical value?
Transaction costs
Speculation
Irregular exercise and sale of rights
over the subscription period
Standby Arrangement
Standby Arrangement -- A measure taken to
ensure the complete success of a rights
offering in which an investment banker or
group of investment bankers agrees to
stand by to underwrite any unsubscribed
(unsold) portion of the issue.
19-24
Oversubscription Privilege
Oversubscription Privilege -- The right to
purchase, on a pro rata basis, any
unsubscribed shares in a rights offering.
19-25
Privileged Subscription
versus Underwritten Issue
19-26
Regulation of Security
Offerings -- Federal
Securities Act of 1933 -- Generally requires
that public offerings be registered with the
federal government before they may be sold;
also known as Truth in Securities Act.
Act
Securities Exchange Act of 1934 -- Regulates
the secondary market for long-term securities
-- the securities exchanges and the over-thecounter market.
19-27
Regulation of Security
Offerings -- Federal
Registration Statement -- The disclosure
document filed with the SEC in order to
register a new securities issue.
Part 1: Prospectus -- Discloses information
about the issuing company and its new
offering and is distributed to investors.
Part 2:
2 Additional information required by the
SEC that is not part of the printed
prospectus.
19-28
Red Herring
Red Herring -- The preliminary prospectus. It
includes a legend in red ink on the cover
stating that the registration statement has not
yet become effective.
19-29
Regulation of Security
Offerings -- Federal
Registration Statement Effective Date
Registration statements become
effective on the 20th day after filing
(or on the 20th day after filing the
last amendment).
19-30
Regulation of Security
Offerings -- Federal
Impact with shelf registration:
19-31
Regulation of Security
Offerings -- Federal
Tombstone Advertisement -- An
announcement placed in newspapers and
magazines giving just the most basic details
of a security offering.
19-32
Sarbanes-Oxley
Act of 2002
Sarbanes-Oxley Act of 2002 (SOX)
Addresses, among other issues, corporate
governance, auditing and accounting,
executive compensation, and enhanced and
timely disclosure of corporate information.
19-33
Regulation of Security
Offerings -- State
Blue Sky Laws -- State laws regulating the
offering and sale of securities.
19-34
Private Placement
Private (or Direct) Placement -- The sale of an
entire issue of unregistered securities (usually
bonds) directly to one purchaser or a group of
purchasers (usually financial intermediaries).
19-35
Private
Placement Features
19-36
19-37
19-38
19-39
19-40
Signaling Effects
Negative stock
price reaction to
common stock or
convertible
issues.
Straight debt and
preferred stock
do not tend to
show statistically
significant
effects.
Relative Abnormal
Stock Returns for a
New Equity Issue
Cumulative Average
Abnormal Return (%)
2
1
0
-1
-2
-3
-4
-10
-8
-6
-4
-2
Possible Explanations
for Price Reactions
Expectations of Future Cash Flows
19-42
19-43