Corporate Actions

Question 1

Corporate Actions

Answer 1

Any event that affects the Shareholders of that company

Specific Announcements

Question 2

3 Types Headlines

Answer 2

1) Mandatory
2) Voluntary
3) Voluntary with options

Question 3

Mandatory

Answer 3

Shareholder has no control or influence over this

Examples

• Bonus Issues
• Mergers
• Cash Dividends

Question 4

Voluntary

Answer 4

Cannot happen without SH approval

Examples

• Takeovers
• Conversion of Bonds to Shares
• Exercise a warrant

Question 5

Mandatory with Options

Answer 5

Announcement does not require SH approval however, after announcement SH has some decisions

Examples

• Rights Issues
• Dividends

However Dividends mandatory for exam

Question 6

Rights Issues / Pre - Emptive Rights

Answer 6

Mandatory with Options

Company raises capital buy issuing more shares

Right to buy new shares in proportion to existing holding

Offered at discounted rate

May use underwriters - Bank guarantee the issuance will raise a certain level of capital

Question 7

Choices for Shareholders in rights issue

Answer 7

1) Take up rights = Pay for new shares
2) Sell rights = Sell right to third party
3) Split rights = Sell some rights to rise enough money to take up some new shares
4) Lapse - DO NOTHING = Issuer attempt to sell on on Investors behalf

Question 8

Open Offer Rights Issue

Answer 8

Option 1+ 4 only

1- Take up rights

4- Do nothing

2 weeks to decide

Question 9

Underwriting

Answer 9

Process where financial institution agrees to buy any unsold shares from an IPO.

In return Financial institution receives a fee.

Question 10

Theoretical Ex- rights issue price calculation

Answer 10

• Times out the ratio e.g. 1:4
  4 shares @ 1.75
  1 share @1.50
• Total price / number of shares
  remember to include 1 for during rights issue

8.50/5 = 1.70

Question 11

Selling Rights formula

Answer 11

Theoretical ex price - Rights price

Question 12

Bonus Issue

Answer 12

Also known as Capitalisation Issue / Scrip Issue

• Shares issued free of charge
• Effect: Dilute existing share price to increase liquidity / marketability

Question 13

Key features of a Bonus Issue

Answer 13

• Increase liquidity
• Decrease price of a share
• Bring share capital in line with current business needs

Question 14

Theoretical Ex - Price Calculation

Answer 14

1:5 Bonus issue

Pre announced price is 120p

5x 120 = 600p

1x0 = 0p

600/6 = 100p

Question 15

Ex Div definiton

Answer 15

Purchaser of share is not entitled to next dividend

Question 16

Dividend

Answer 16

Ex Div Date - Thursday

Record date is - Friday

Announce dividend payment via primary info provider and then to secondary

Question 17

Takeover

Answer 17

Voluntary

Attempt to acquire >50% of shares in company

Question 18

Merger

Answer 18

Mandatory

Two similar sized companies joined together