The main shareholder of the company (a portfolio company) holds 75% of the capital. They decide to participate to the transaction by exercising 50% of their rights and selling in the market the remaining 50%. They sell their rights at a price equal to the theoretical value of the rights. The company operates in a low-growth cyclical industry. The pressure on prices and margins is high. However, the management tries to maintain a stable stock yield through its dividend policy. They also pay attention to investor relation and communication. At the time of the capital raising, the cycle is not favorable, But the management says they want to maintain their financial flexibility policy.

The management believes that the company may seize acquisition opportunities at reasonable prices in the near future. Acquisitions shall be financed at 50% in debt and 50% in equity, a ratio that is consistent with the company's current capital structure.

Would you be a shareholder, what would be the pros and cons of a participation to this rights issue?

Answer rating: 100% (QA)

As a shareholder participating in the rights issue and exercising 50 of the rights could have some p... View the full answer