RE:More Free Bees for the insiders....of Genm Rights in Aug How Rights Issues Work
So, how do rights issues work? Let's say you own 1,000 shares in Wobble Telecom, each of which is worth $5.50. The company is in financial trouble and needs to raise cash to cover its debt obligations. Wobble, therefore, announces a rights offering through which it plans to raise $30 million by issuing 10 million shares to existing investors at a price of $3 each. But this issue is a three-for-10 rights issue. In other words, for every 10 shares you hold, Wobble is offering you another three at a deeply discounted price of $3. This price is 45% less than the $5.50 price at which Wobble stock trades.
As a shareholder, you have three options with a rights issue. You can (1) subscribe to the rights issue in full, (2) ignore your rights, or (3) sell the rights to someone else.