RE: Rights Offering CommentsHey Marine,
I'm somewhat confused by your statement "...One risk is dilution in the form of financings put up by Mountain Province's major shareholders that increases their share of the future value at the expense of minority shareholders because the pricing is cheap. [This happened with PGD were main shareholders increased their ownership disproportionly through a rights offering !]....".
My understanding, and that of most Finance types is that:
1] a rights offering is created to both benefit the shareholder of the underlying company, and add an infusion of cash to the the company's treasury with the minimum of expense,
2] the initial rights offering by a publicly traded company does not change the proportional ownership of the company,
3] the rights become a tradeable security on the same stock exchange as the underlying common, and
4] the owner of the rights has the choice of exercising those rights he receives, selling them on the open market, adding more rights to his portfolio through purchases of rights that others have decided to sell, or letting them expire at the expiration date.
There is always the chance that a company will manipulate the market so that the underlying share price drops below the strike price by the exercise deadline. The purpose here might be to allow certain parties the opportunity of exercising their rights, and therefore acquire a large chunk of underlying shares otherwise unavailable in a tight market. However the penalties, both criminal and civil, generally dissuade companies from this kind of activity.
I don't know of the (PGD?) example you are referring to, but if you can prove that fraud or market manipulation took place, you should have reported it.
The Canadian Securities Course manual explains the basics of a "Rights Offering" very well. Most libraries in Canada have a copy on file, or you can obtain one from your stockbroker, who was required to take and pass the course.
Cheers,
Brit