This paper "The Analysis of Financial Markets and Institutions" is an outstanding example of a Finances & Accounting essay. According to Paul (34), the accelerated renounceable pro-rata entitlement offer refers to; the issuing of a new share by the company which may be mainly subscribed for in return for agreement to pay for the designed allotment of the new share at a certain predesigned price value. Here, the accelerated renounceable pro-rata entitlement is not one that is tradable as compared to that of the right issue. Using the Tabcorp Holding Limited scenario, this kind of entitlement offer commences by the announcement of a new share.
For example, the company first announced its proposal to demerge its operation into two separate listed corporations. It further went on explaining the reason for demerging as facilitation of better recognition of share value over a certain business period. It is important that Tabcorp Company to offer a bookbuild or any definable sale facility for its designed renounceable entitlement so that any shareholder who does not participate is still in a position of releasing some value from their individual entitlement.
Paul (43) asserts that this holding was further involved in launching a fully underwritten one for a nine accelerated renounceable pro-rata entitlement offer as a way of providing funding certainty described for capital growth. By so doing, it was a clear indication that these two corporations have appropriate capital structures. Further, this organization accelerated renounceable pro-rata entitlement was entitled to give a certain offer of ordinary shares in Tabcorp to both its retailer and institutional investor as a way of enabling them to raise four hundred and thirty dollars.
The offered issue price was termed to be $6.25 which was presented with a 12.0% discount which was the final price of trading prior to the beginning of the designed entitlement offer. Australian Shareholders’ Association (1) asserts that it is important for shareholders to know that this kind of entitlement offer should be preferred stating option for any organization seeking for any kind of additional equitable funding since this method allow this particular organization to give an offer to its shareholder which are mainly additional equity is proportional in relation to their current holding. According to the Australian Shareholders’ Association (1), research indicates there are many advantages associated with this method as well as some definable disadvantages.
some of the advantages are; all shareholders are given an equal opportunity to any new share proportionally in any kind of issue, all shareholders for instance in our case of Tabcorp scenario have the opportunity of avoiding any kind of dilution of their shareholding and finally, in case of any required capital quickly, Tabcorp can acquire the ability to accelerate what is known as the institutional component of the said offer by use of the above described accelerated right issue.
The main disadvantage of this kind of method is that it constantly rewards the lowest number of its shareholders with various disproportionate amounts of equity (Australian Shareholders’ Association, p2). According to Lewis (34), companies both public and private require capital either to increase their reach in the market or in order to increase their productivity. It is due to these reasons that companies find different ways in which they can be able to raise capital to sustain their needs.
Examples of ways in which organizations raise funds include the use of a placement to institutional shareholders and associate share purchase for retail investors and making a pro-rata issue to all shareholders. In order to understand these ways, it is essential to understand what a share is. A share is defined to be a unit whereby totals share capital is divided. Therefore, the total share capital of a company is defined as the sum into which a company is established to carry on business capital (Lewis, p76).
Australian Shareholders’ Association. Equitable Treatment of Shareholders in Capital Rising. http://australianshareholders.com.au/asa_site/images/pdf_archive/policyStatements/equitable%20treatment%20of%20shareholders%20in%20capital%20raising%20draft1.pdf
Lewis, Jakema. "2000: A See-Sawing Year for Private Deals." Private Placement Letter. January 29, 2001.
Paul, Barnes. Stock market efficiency, insider dealing and market abuse. Farnham, England; Burlington, VT: Gower, 2009.
Sherman, Andrew J. The Complete Guide to Running and Growing Your Business. New York: Random House, 1997.
Taylor, Lon W. "Raising Capital through Private Placements." Journal of Business Strategy. July-August 1988.