Some stockholders have a preemptive right that allows them to maintain their ownership percentage in the company
by purchasing additional shares of any new stock issues.
Rights offerings, like preemptive rights, prevent dilution of stock for existing shareholders when new shares are
issued. Which of these companies are likely to make a rights offering?
Companies that do not have preemptive rights in their charters
Companies that have preemptive rights in their charters
Suppose you own 1,000 shares of Seattle Seafood Co. You received an announcement on December 15 that stated
Seattle Seafood Co. plans to sell an additional 3 million shares of common stock through a rights offering to
shareholders as of January 15. The current market price of the Seattle Seafood Co.'s shares is $35.20 per share, and
as per the announcement of the offering, the subscription price of the rights is $30.80. As an active shareholder, you
collect and calculate the following information to use in your analysis of the rights offering:
Your review of your share transaction details reveals that you bought 800 shares of Seattle Seafood Co. on
January 13 and 200 shares on January 15.
This means that you have shares that trade with rights-on and shares that trade ex-rights.
Seattle Seafood Co. has 11 million shares of common stock outstanding. Thus, each right will enable you to
buy shares through the rights offering, and it would take rights to purchase 1 new share.
Each stockholder receives 1 right for each share currently held. You will be eligible to purchase
new shares in the new share offering.
Based on the information you collected and calculated above, complete the following table for your analysis of the
rights offering.
Value
