Open offer

An open offer is similar to a rights issue, in that shareholders are entitled to buy newly issued shares in proportion to their existing holdings. Unlike a rights issue, an open offer does not allow shareholders to sell the right to subscribe to shares — the shareholders have an entitlement rather than a tradeable right to subscribe to new shares. For this reason an open offer is sometimes called an entitlement issue.

Any entitlement that is not taken up is simply allowed to laps, or the shares are sold to another party with no compensation to the original shareholder for the loss in value of their holding that results from the dilution the new issue causes.

As with a rights issue, the price of the offer is likely to be at a discount to the current share price and the effect of the open offer on the price is calculated in essentially the same way.

Rights issues are more common as they are just as effective in raising money for the company, but more convenient for those shareholders who do not wish to increase their holding, as they can simply sell the rights.

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