"Corporate Actions Management" - if i take this up, will the SP definitely fall?

adamt

Hi,

I mentioned before about recieving a "Corporate Action s Management option" option for my MMC holding:

MGT CONSULTING GP - OPEN OFFER
11 New Ordinary shares for every 100 Existing Ordinary share held at an Issue Price of 22 pence per New Ordinary share.

Qualifying holders who apply to take up the Open Offer shares will be entitled to receive 0.467 of a Warrant for each New Ordinary share taken up at no additional cost.

In addition, you may apply for an excess application. If you wish to apply for an excess application then you must enter the total quantity of shares you wish to apply for. For example, if your basic entitlement was 100 and you wished to apply for 20 excess shares then you would enter 120 as the total quantity of shares required.


Someone said that a few weeks after the offer closes, the share price will drop due to the diluting of the SP as more shares will now be issued.

As i bought into MMC 6 weeks ago for 22p per share, i was thinking if i take up this offer of buying a select amount for the 22p price, surely this is worth taking up?

As i will be gaining 6p immediately.

Or is it 100% true that once new shares are issued the SP will fall due to new shares being issued, diluiting the SP?

thank you

Annisele

I'm not quite sure how you calculate an immediate gain of 6p?

All other things being equal, yes the share price will fall once the new shares have been issued. (However, all other things won't be equal - the corporate action won't be the only thing affecting the share price, and other things will be working to push the price up or down).

For example, say that there is a company, A plc, that has only issued 1,000 shares. Also say that those shares are trading at £1 each - so the market values A plc at £1,000.

Now assume that A plc has an open offer, letting investors subscribe for 11 new ordinary shares for each 100 existing ordinary shares held, at an issue price of 22 pence per new ordinary share. (I'm ignoring warrants and excess applications for now).

That means that, after the corporate action, there will exist 1,110 shares in A plc. However - all other things being equal - the market will still think that A plc has a total value of £1,000. So, the effect would likely be to reduce the share price to (£1,000 / 1,110) or £0.90.

If existing investors got to subscribe at a price of 22p, it would still be a steal for them - because the actual value of the shares would be nearer to 90p. (In the real world, if the actual value of the shares was in the region of 90p the company wouldn't offer them at 22p; this is just an example).

adamt

thanks for explaining Annisele,

Lokolo explained in a similiar way but i wanted to double check.

I requested an excess amount of 4500 - £1000

So i think i will have to wait for the outcome of that