Posted in Finance, Accounting and Economics Terms, Total Reads: 103
Definition: Push Out
Push out is a strategy used by the publicly listed companies to increase the number of outstanding shares by issuing new shares to the existing shareholders. This kind of strategy helps in stock split.
The main advantage of the push out strategy is that is it offered to existing shareholders meaning that it is
1) Less difficult than that issuing to the public in terms of money as well as time required. Other method employed can be calling back all the shares and then issuing new certificates. This kind of method is increase use of the resources which can be used for other purpose
2) Other benefit is that existing shareholders get rights over the others, so they do not feel their voting rights are being taken away. Issuing of more shares means that the voting rights of the shareholder are being diluted. When they are offered the new shares can choose to maintain their voting right shares
3) Another benefit of push out is to keep the value of the shares realistic rather than making an unrealistic price bubble. If the prices of the shares are double or more than double than what it is of the similar companies in the similar industry pushing out strategy can help get down to realistic value by dividing the same market capitalization value within more number of shares.
• The new shares issued are of the same value as the earlier issued holding equal voting and other rights.
• By issuing new share certificates the market capitalization value of the firm does not change. The numerator remains the same only the number of shares outstanding which is the denominator changes. Hence the prices of shares normally goes down.
=Market capitalized value of the firm
No. of shares outstanding
XYZ Company has a market value if 10million, now they want to increase the number of shares by using push out strategy, hence they declare to its existing shareholders issue of new certificates to them with split being 2 for 1. Now the number of existing shareholders are 5million. Hence price per share 2 $ per share. Now with the push strategy the hare price will fall to 1 $ as the no. of outstanding shares have gone to 10 million.