Posted in Finance, Accounting and Economics Terms, Total Reads: 333
Definition: Open Offer
A secondary market, in which an investor is allowed to purchase the share of a company at a price lower than the current market price to raise cash for the company, is called an open offer. The objective of this offer is to raise cash for the company.
It is also known as an entitlement issue. Unlike a rights issue, a shareholder cannot trade or sell an open offer. Also if you do not take up the entitlement, it lapses. Due to this, when an open offer is pronounced, one will be allocated sub shares, not nil paid shares.
Some investors see such market offering as bad news as it results in stock dilution and may indicate that the stock is overvalued.
For creating an open offer, an acquirer has to do a public announcement, which should mention offer price, purpose of acquisition, identity of the acquirer, number of shares to be acquired from the public, future plans, details about target Company, procedure of accepting the shares and the time period for this.
The acquirer has to pay the confirmation to shareholders within 15 days from the closing date of the offer. For any deferral, the acquirer is mandatory to pay interest on the amount.