Rights and Dilutive actions

I understand rights and warrants, except I think I may be confused about whether or not rights are dilutive actions.
I did read the topic on this very same question - Achievable
– that was posted Jan '22. I had to check the author to make sure I had not posted that because it was literally what was going through my mind! (Except that I was not using Achievable in 2022 . . .)

Anyway, after reading the '22 posts on this question, is it correct that the rights offering is not diultive because it is an offering, not a transaction. In other words, an offer does not constitute the event that would trigger the dilution, correct? The exercise of the offering would be the dilutive event, correct?

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Good question, @Emilio_Rogahn. First, let’s define what a ‘dilutive action’ is. It’s any issuer action that reduces the proportionate ownership level of shareholders. For example, assume you own 10% of the outstanding shares of a publicly traded company. The company issues a bunch of convertible bonds, which will result in your ownership level being ‘diluted’ from 10% to 5% if all the bonds are converted. This is a classic example of dilution - an issuer action (the issuance of convertible securities) reduces the proportionate ownership level of its shareholders.

A rights offering is not dilutive because rights are provided to all shareholders (one right received for every share owned). This gives all shareholders the opportunity to maintain the same proportionate ownership level if they participate.

The reason it’s not dilutive isn’t because of anything relating to an offer or transaction. It’s simply that all shareholders receive rights. That’s another way to spot a dilutive action - if only a small party (not all shareholders) receives more shares, it’s likely dilutive. If all shareholders get new shares (e.g., a stock split) or gain the opportunity to buy new shares, then it’s not dilutive.

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Thank you . This makes sense. Not sure why I didn’t think that way . . .

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So to speak, issuing stock dividends is not considered as dilutive event or action, because it applies to all the share holders.

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@Hungry_turquoise_par - yes, you got it! If every shareholder gets something (e.g., a dividend, stock split), then it’s not dilutive. If a small group receives something and not the whole group (e.g., convertible bondholders convert into common stock), it’s most likely dilutive.

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